Aligning Risk Appetite. Part 1
“How can you manage risk without understanding risk appetite?” asked Chris Mandel, SVP Strategic Solutions at Sedgwick, Inc. He was the first of two presenters at the webinar “Aligning Risk Appetite with ERM Governance” sponsored by the Global Association of Risk Professionals on March 17, 2015. “Some people ask why do I have to go through a bureaucratic exercise,” Mandel said, pointing out that there are real advantages to developing a risk appetite framework (RAF). Risk appetite management is expected more and more often by regulators, credit rating agencies, institutional investors, and internal auditors. “Missing the connection between risk and […]
Tailoring Risk Model to Investment Strategy
Due to the growing complexity of measuring financial risk, “risk has become a patchwork” of different models, said Phil Jacob, Senior Director at Axioma Risk Research. He was the sole presenter in a webinar about tailoring the right risk model to your investment strategy held on March 4, 2015, and sponsored by the Global Association of Risk Professionals (GARP). Jacob identified four inherent challenges. “There are operational issues stemming from existing rigid approaches,” leading to “difficulty in aggregating risk.” There is a lack of consistency in modeling portfolios, which can run the gamut from very simple proxies all the way […]
Alternative Mutual Funds 3
“I can’t stress enough: Boards are now being asked to look at things in great detail,” said Kathleen Moriarty, Partner at Katten Muchin Rosenman LLP. “We spend a lot of time educating the Board,” she said, referring to the Board of Directors of alternative mutual funds. It’s simply that the Board is required to understand the fund at a deeper level than ever before. Moriarty was the third of three speakers at a GARP-sponsored webinar on Alternative Mutual Funds: Risk Governance Under SEC Security on February 17, 2015. She described a recent instance of going over the legislation on mutual […]
Alternative Mutual Funds 2
“SEC’s mission is to protect investors and support responsible capital formation,” said Raymond Slezak, Assistant Regional Director at the Securities and Exchange Commission (SEC). He was the second of three presenters at the GARP-sponsored webinar held February 17, 2015, on Alternative Mutual Funds: Risk Governance Under SEC Security. Liquid alternative mutual funds were “listed as a priority” as early as 2013, he said, because “any time there’s rapid growth” or “concern about the dynamics of money managers moving into an area,” it attracts SEC interest. As a metaphor about the regulatory thought about the new funds, Slezak repeated a quotation […]
Alternative Mutual Funds 1
Alternative mutual funds have been experiencing a growth “nothing short of phenomenal,” said Amy Poster, Director of Financial Services Advisory at Berdon LLP, “and this has not escaped the notice of the Office of Compliance Inspections and Examinations (OCIE).” She was the first of three speakers in a webinar about alternative mutual funds held on February 17, 2015, and sponsored by the Global Association of Risk Professionals (GARP). She pointed to a 2014 Barclays study, Developments and Opportunities for Hedge Fund Managers in the ’40 Act Space , that estimated assets controlled by liquid alternative funds would reach between $USD […]
Stress Testing Mortgages. Part 2
The team of Scott L. Smith, Jesse Weiher, and Debra Fuller at the Federal Housing Finance Agency (FHFA) use specialized financial models to estimate potential losses. They carried out empirical tests of countercyclical shocks using four different models of mortgage credit risk. This posting continues a February 4, 2015, presentation by Scott L. Smith to an audience of financial risk managers at Global Association of Risk Professionals (GARP). Two models were devised at FHFA, and two are commercially available credit models: one, called Black Knight (formerly LPS-AA), and the other called ADCO Loan Dynamics. The estimated losses were converted to a capital […]
Stress Testing Mortgages. Part 1
“One needs to be careful and not over-reliant on any one model,” said Scott L. Smith, Associate Director for Capital Policy at the Federal Housing Finance Agency (FHFA). He was referring to the financial models used by major financial institutions to estimate potential losses. On February 4, 2015, he was presenting a GARP-sponsored webinar on countercyclical stress tests to set capital requirements. Smith explained how credit risk is measured for mortgages, and described a way to embed stress testing that uses countercyclical concepts. He and colleague Jesse Weiher, Senior Economist at FHFA, performed dynamic stress testing that was adjusted to […]
Cyber Risks: 5 Core Capabilities
Integration of cybersecurity into an organization’s risk management framework is “still in the hunter-gatherer state,” said Yo Delmar, VP, Governance Risk & Compliance (GRC) at MetricStream. She was the second of two presenters at the December 16, 2014, webinar on cybersecurity organized by the Global Association of Risk Professionals. Cyber risks are currently incorporated into existing risk management and governance processes in an ad hoc fashion that is “unorganized and fragmented,” Delmar said. “There is quite a bit of work to do to get to a rationalized state” that would permit management of such risks. “Most companies have the vision […]
Cyber Risks: “the New Normal”
“We are living in the middle of a cyber war,” said Christophe LeSieur, Global Practice Lead of Governance, Risk & Compliance (GRC) at CSC. He was the first of two presenters at a webinar on cybersecurity sponsored by the Global Association of Risk Professionals held on December 16, 2014. He described “the new normal” as “an environment of unprecedented tension” whose mega-trends are: social media, information technology (IT) and internet everywhere, proliferating platforms (mobile, bring your own device[BYOD]), and a huge quantity of data. The world is becoming ever more different, and the number of attacks is growing. Just this […]
When Data Is Sparse. Part 2
It’s difficult to model sovereign credit risk for emerging markets using structural models such as the Merton model because “calibration is always an issue,” said Rob Stamicar, Senior Director of Research in Multi-Asset Class Risk Management at Axioma, continuing a theme during the second half of his webinar on December 2, 2014. During the first half, he showed how the probability of default can be used as a common link among the asset classes of interest (bonds, swaps, and equities). In the second half, he focused more on sovereign credit risk. Calculation of sovereign risk could be done directly, “but […]