Skip to main content
The Actuary: The magazine of the Institute and Faculty of Actuaries - return to the homepage Logo of The Actuary website
  • Search
  • Visit The Actuary Magazine on Facebook
  • Visit The Actuary Magazine on LinkedIn
  • Visit @TheActuaryMag on Twitter
Visit the website of the Institute and Faculty of Actuaries Logo of the Institute and Faculty of Actuaries

Main navigation

  • News
  • Features
    • General Features
    • Interviews
    • Students
    • Opinion
  • Topics
  • Knowledge
    • Business Skills
    • Careers
    • Events
    • Predictions by The Actuary
    • Whitepapers
    • Webinars
    • Podcasts
  • Jobs
  • IFoA
    • CEO Comment
    • IFoA News
    • People & Social News
    • President Comment
  • Archive
Quick links:
  • Home
  • The Actuary Issues
  • March 2012
03

Fund managers 'should re-think on risk management'

Open-access content Tuesday 6th March 2012 — updated 5.13pm, Wednesday 29th April 2020

Institutional fund managers can gain a competitive advantage by shifting their thinking to align risk with the long-term mission of their fund, according to Towers Watson.

2

In a report published today, entitled The wrong type of snow, the consultancy said that risk management had, until now, focused on harnessing technology for measuring risk rather than developing a deeper understanding of risk itself.

Tim Hodgson, head of the Thinking Ahead group at Towers Watson, urged fund managers to rethink this and promote better management ahead of risk measurement.

'We have come to a growing conviction that better risk management can give competitive advantage,' he said. 'Institutions can achieve this by shifting their thinking to align risk with mission by modifying practices to adopt a better risk framework and by bringing these together through stronger risk governance.'

Calling for risk to be redefined in the context of the fund's mission towards long-term value creation, Mr Hodgson said Towers Watson was increasingly defining risk as either 'impairment to mission' or 'surviving the whole journey'. It was also introducing the concept of adaptive buffers into its advice.

'These buffers are mechanisms, both financial and non-financial, that are available to the investor to support them through adverse periods and can be used with a consideration of different potential future scenarios to evaluate how much risk a fund should be taking,' he explained.

' We believe a risk "sweet spot" exists whereby enough risk is taken to generate wealth, given the available buffers, but not so much that mission is likely to be permanently impaired.'

Until now, risk models have over-emphasised short term success over long term goals and return ahead of risk, the report said. Models fail to deal properly with complexity and in particular endogenous risk -the risk that investors' own decisions and actions can alter the risk landscape.

Mr Hodgson said: 'Models have value, but only where they are employed with good understanding. By implication current practice needs significant enhancement.'

In the report, Towers Watson outlines how mission-related risk, adaptive buffers and risk measures can be implemented through a new risk framework. It also considers how asset owners can organise themselves to implement best practice in risk management.

'We argue that these frameworks require strong risk governance. As such organisations need to develop a risk culture where responsibility is shared appropriately and risk matters are given appropriate prominence on agendas and in communication,' Mr Hodgson said.

This article appeared in our March 2012 issue of The Actuary.
Click here to view this issue
Filed in:
03
Topics:
Risk & ERM

You might also like...

Share
  • Twitter
  • Facebook
  • Linked in
  • Mail
  • Print

Latest Jobs

Senior Underwriting Risk Manager

London (Central)
£85K-£95K + Benefits
Reference
124386

Reserving Manager (Contract)

London (Central)
£1200 - £1400 per day
Reference
124385

Life Actuary - Contract - IFRS 17 Financial Impact

England, London / England, Bristol / North Yorkshire, England
£900 - £1150 per day
Reference
124384
See all jobs »
 
 

Today's top reads

 
 

Sign up to our newsletter

News, jobs and updates

Sign up

Subscribe to The Actuary

Receive the print edition straight to your door

Subscribe
Spread-iPad-slantB-june.png

Topics

  • Data Science
  • Investment
  • Risk & ERM
  • Pensions
  • Environment
  • Soft skills
  • General Insurance
  • Regulation Standards
  • Health care
  • Technology
  • Reinsurance
  • Global
  • Life insurance
​
FOLLOW US
The Actuary on LinkedIn
@TheActuaryMag on Twitter
Facebook: The Actuary Magazine
CONTACT US
The Actuary
Tel: (+44) 020 7880 6200
​

IFoA

About IFoA
Become an actuary
IFoA Events
About membership

Information

Privacy Policy
Terms & Conditions
Cookie Policy
Think Green

Get in touch

Contact us
Advertise with us
Subscribe to The Actuary Magazine
Contribute

The Actuary Jobs

Actuarial job search
Pensions jobs
General insurance jobs
Solvency II jobs

© 2022 The Actuary. The Actuary is published on behalf of the Institute and Faculty of Actuaries by Redactive Publishing Limited. All rights reserved. Reproduction of any part is not allowed without written permission.

Redactive Media Group Ltd, 71-75 Shelton Street, London WC2H 9JQ