RiskTech Forum

Risk Oversight Of Investment Activity - Twelve Pitfalls To Avoid

Posted: 3 February 2015  |  Author: Bob Bannon

The key functional area in any investment management firm is the investment team. It is also the firm’s primary source of risk. Executive management rarely has the time to review the investment activity of the firm directly, the legal and compliance teams often lack the necessary expertise to judge the intricacies of the investment process and the investment team itself has an obvious conflict of interest in overseeing its own activities. The solution to the core risk to the firm posed by the investment process lies in establishing and supporting an independent, skilled and properly resourced Risk Oversight function. Establishing a Risk Oversight function, particularly in an already well-established investment firm, can pose challenges for executive management – this white paper discusses the most important pitfalls to avoid.


It is fair to say that when launched, the focus for most investment management (IM) firms is on establishing and selling its investment management process. Consideration of risk at the firm level is generally a concept that is introduced later, once the firm is established and growing. Even for IM firms that have been in operation for many decades, firm-level risk is likely a concept that was only introduced to their organization well after its founding.

Since risk at the firm level is a concept introduced after an IM firm is established, there will be competing interests within the firm that will seek to influence the creation of such a risk program. Certainly the IM department will take a keen interest, as will other Governance areas (Compliance and Legal) in the organization. Other functional areas such as Operations, Sales and Marketing may, depending on the firm and its people, want to have a say in the creation of any type of risk function in their firm, especially if they feel it will affect their areas of responsibility.

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