Jill Douglas, our Global Head of Risk, summarises recent changes within the risk management landscape, highlighting the rise in importance of the Risk function, and then outlines how Askari, our risk management solution, can help achieve strong safety and control in investment processes in the current investment climate. (3:48)
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Transcript
The risk function has changed dramatically over the years so if I went back to two thousand and seven the risk function at that point was really seen as more of an inconvenience. It was a regulatory necessity but it did not add to the bottom line and indeed it took a very powerful individual to be able to stand up to a successful trader in the issue of risk verses return.
I think those of us able to remember the role that Nick Leeson played in the downfall of Barings in 1994, I think would have a lot of sympathy with the predicament the risk managers find themselves in at the moment.
We lived through a period of high returns and seemingly low risk and all that did was to weight that argument of risk verses return even more heavily against the poor old risk manager but with the financial crisis things have dramatically changed. The status of the risk manager has risen dramatically within the organizations and we've now seen the risk manager's role elevated to the position within the C-suite and they’re providing valued guidance to the organisations.
Together with this change the general public has become all too painfully aware of risk. They've also been aware of complex derivative products to which their portfolios were exposed. The popular press for example have cited headlines including things such as ‘credit default swaps’ and 'tranches' for example; previously the domain of the financial quants and what that's done is to create a demand for knowledge, so the general public and C-level executives right down from the organisation want to understand what these products are and what the effect is on risk.
The market for risk management is never better after a crisis when people realise that risk is there and markets can go down. DST Global Solutions has seen a demand for greater, clearer risk solutions fuelled by the requirements of the investors and regulators alike.
There is no immunisation against risk. Risk managers need to work with senior management and direction needs to come from the top down. Organisations need to appreciate where their risks are exposed. So in summary we need better education and we need to follow the maxims, “It’s better to be roughly right than precisely wrong” and “If you can't understand it, then it you can't price it, then don't buy it”.
DST Global Solutions provides Askari as our risk solution. The word Askari actually means guard or soldier. By using the tools provided appropriately, organizations are able to guard against unintentional risk taking. So not only do we provide sophisticated tools to calculate and analyse where risk is exposed, we provide a complete reporting solution allowing the risk manager to provide clear and concise reports to the C-level and investors alike, explaining in non mathematical terms, complex calculations - providing the best of both worlds.
