Risk management is still not considered a core strategic function at some of the world’s biggest investment houses, according to a survey by research group SimCorp StrategyLab. Despite all the talk given to the importance of risk management techniques and even handing the risk reporting function to their boards of directors or senior managers, some money management firms are clearly not “walking the talk,” says Ingo Walter, director of SimCorp StrategyLab in Copenhagen and a professor at New York University.
The survey was based on interviews with key players in 90 firms managing billions of dollars around the world. “The findings of this survey suggest the degree of urgency—particularly about the resources needed for effective risk management and its role in overall senior management and strategy development—is not perceived by the respondents as compelling and in some ways is moving in the wrong direction,” says Walter.
For example, 37% of the respondents pointed to an insufficient strategic understanding of the risk function as a reason behind the large financial losses in the industry over the past two years. Yet 75% of the respondents consider that risk management makes a minimal contribution in the capital allocation decisions made in their firms.
About three-quarters of the executives viewed the need for greater strategic influence of the risk function as the most important factor in making risk management more effective. This implies, the report says, that managers want support from their most senior officers.
In addition, more than half of the respondents want to reshape the scope of the risk control function and value a more integrated view of risk management and stricter regulatory requirements, as well as greater spending on risk management.
“It appears that this gap between what investment managers say and what they actually do needs to be closed,” says Walter. “If they fail to do it themselves, the regulators may well do it for them.”
—Paula L. Green
