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20 February 2014

Risk management "growing in importance" for institutional investors

Content team

Risk management is set to have an even greater influence on investment decision processes in the coming months, 80 per cent of institutional investors have told a newly-published study.

Global investment management firm BNY Mellon has revealed that the majority of investors feel risk management will become an ever-pressing concern in the future, with almost three-quarters of those surveyed expecting to spend more time on investment risk issues.

The study, entitled New Frontiers of Risk: Revisiting the 360° Manager, took into account a wide range of risk-related topics, including credit risk management, non-domestic investing and regulatory change, also highlighting that 68 per cent of institutional investors will be focusing more on operational risk in the future.

Head of BNY Mellon's Global Risk Solutions group Debra Baker said that investors are facing "some formidable risk pressures", including transparency concerns, adding: "For many, risk management has been a puzzling proposition - just when they think most risks have been measured, managed and mitigated, new ones emerge and old ones evolve."

She went on to say that there is a growing need for a joined-up framework that incorporates all aspects of risk management and how they impact on one another, as well as the investment programme. Quantitative scoring may be the solution, she suggested.

The survey showed that more than 60 per cent of institutional investors had implemented risk management practices as a result of growing awareness at management level, while 59 per cent of respondents said they felt their firms had benefitted from evolution in risk managements measures over the past five years. The most important risk policy measures cited by respondents were underperforming versus liabilities and underachieving overall return targets.

It also highlighted the financial crisis of 2008 as the biggest motivator when it comes to focusing on risk. A report by KPMG recently revealed that financial institutions haven't achieved as much as they had hoped to since the crisis, citing the complex nature of regulatory legislation as a potential factor.

Content team, Bureau van Dijk

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