So you want to manage risk? What to do and what to avoid.

1:45 – Ask yourself, "How will a risk system fit into your process?" This is a critical consideration prior to implementation.

2:45-3:30 – Due to the global financial crisis more firms realized they do need a form of risk systems. Managers realized they needed to think of risk, even small scale firms.

3:30 – Some clients have actually said they don't believe risk adds value to their process, but implement it at the behest of one fund sponsor or one manager. This represents a missed opportunity to review the scope of how risk systems can help.

4:30-5:10 – Every firm needs risk in varying degrees. Fund managers and plan sponsors are exhaustive in the search for alpha – why wouldn’t the same rigor apply to risk management?

6:10-7:45 – Even in specific investment strategy cases you may need more than one model, one for shorter term, volatile market conditions and one for a standard investment horizon, dynamic to reflect changes. If an investment firm has multiple strategies, one model generally will not work, it may even be at the firm’s detriment. One large multi-asset class global model isn’t usually enough for such firms.

8:45 – You must have a risk model first and foremost, plus accurate portfolio and benchmark data, pricing, and security descriptive data that allows you to increase coverage if needed.

11:30-12:30 – Fundamental and economic data can help risk teams to communicate with the non-risk personnel – i.e., if the risk team is explaining that a portfolio is highly exposed to size in a particular risk model, they can take market cap information and put that right next to the factor to demonstrate that size is just a measure of exposure to market cap. Communicating the impact of risk factors in clear, economic/fundamental terms can be helpful in showing the value of the model to non-risk members of the team.

12:30 – Additional market data helps build non-standard stress tests. We can’t anticipate what’s going to happen next, so we need a variety of tests. 

14:00-15:00 – At large firms, they tend to want to do too much with risk too quickly. A good test is to implement risk for a set of portfolios, one particular asset class, and then once you’re happy you can move forward.