Investment Risk Management
The author also covers guidelines of regulatory institutions that protect the market and the investor: Bank of International Settlements, US SEC and UK FSA.
Dream versus rude awakening.
2 The Beginning of Risk.
Risk and business.
Case study: The shark and its risk.
Case study: The ruin of Crédit Lyonnais (CL).
Case study: ABB engineering.
Banking risk and sharks.
Risk management as a discipline.
Humans and risk.
Case study: High-street retail store losses.
Case study: Allied Irish Bank (AIB).
The state of the investment game.
Case study: Equitable Life.
Risk and damage.
3 Investing under Risk.
Human behaviour and investment choice.
Monte Carlo simulation.
Collective use of mathematical tools.
Investment managerial control.
The treasurer’s role.
Trading and risk management.
Investment risk experts.
Case study: A large UK PLC defined benefits pension fund.
Who controls whom.
4 Investing under Attack.
Risk-bearers and risk-takers.
Investment companies/fund managers.
A look in the risk mirror.
Types of CEO – birds of a feather.
The CEO eagle – The M&A addict.
The CEO dodo – Risk-phobic.
The CEO ostrich – Risk-ignorant.
The CEO owl – Risk-acceptable.
The CEO magpie – Risk-seeking.
Company structure and risks.
Case study: The executive background check.
Case study: Boo.com.
Accuracy of corporate losses.
Classes of instruments and their risk components.
Investment as a project.
5 Investing under Investigation.
Instinct versus ability.
Checking corporate fundamentals.
Formulate a business plan.
Risk support and methodology.
Case study: LTCM.
6 Risk Warning Signs.
Prevailing risk attitudes.
Case study: Enron.
Airborne early warning (AEW).
International accounting standards (IAS).
The ratings procedure.
Law and risk management.
Case study: the UK Football League.
What the law covers.
Completeness of contract.
Case study: Merrill Lynch versus Unilever pension fund.
Sarbanes–Oxley Act for audit control.
Risk retention: self-insurance.
Case study: Insuring big oil projects.
Case study: the Names and Lloyds, London.
Sharing, transferring or mitigating risk.
Search for risk management.
Causality and managing investment risk.
Risk management to pick up the pieces.
Case study: Business Continuity, lessons from September 11th.
Case study: Guaranteed annuity payments.
Artificial intelligence (AI) and expert systems.
Case study: Anti-money laundering.
7 The Promise of Risk Management Systems.
Current state of systems.
Risk management methodology – RAMP.
Activity A: Analysis and project launch.
Activity B: Risk review.
Activity C: Risk management.
Activity D: Project close down.
Financial IT system support.
The Basel II Loss Database project.
Case study: Algorithmics systems in a bank.
Integration and straight-through processing (STP).
IT systems project failure.
Case study: IT overload.
Tying financial system functionality to promise.
Giving the go-ahead.
Building risk management systems.
Finding the “best” risk management system.
The invitation to tender (ITT) process.
Business functionality requirements.
User’s functional priorities.
Business flirting – the user’s system specification.
Business flirting – the supplier’s reply.
Judging the ITT beauty show.
Project life cycle.
Risk management project plan.
A – Our risk strategy.
B – Risk review.
C – Risk management.
D – Project close down.
8 Realistic Risk Management.
Fraud, theft and loss.
Fraud perceived as the main criminal threat.
419 – not a number, but a way of life.
Operational risk in emerging markets.
Parachuting in the experts.
Case study: Chase Manhattan in Russia.
Case study: Split capital investment funds.
Exposure to fraud at the top.
Exposure to fraud lower down the rung.
Case Study: Deutsche Morgan-Grenfell, 1996.
An operational risk perspective.
Operational risk protection: the “roof”.
Investment project growth.
Phase 1: High skill.
Phase 2: High performance.
Phase 3: Client growth.
Phase 4: Asset growth.
Case Study: Soros Quantum Fund and Buffett’s Berkshire Hathaway.
Phase 5: Skill decline.
Investor risk skills.
Investment management skills in the market.
Hiring star managers and CEOs.
Investment managers and governance.
Creating a winning fund management team.
Building for investment resilience.
Moving ahead from the investment herd.
Recap on operational risk.
9 The Basel II Banking Regulations.
Current banking problems.
Basel II – a brief overview.
1 Pillar one: Capital requirements.
2 Pillar two: Supervisory review.
3 Pillar three: Market discipline.
Cost-benefits under Basel II.
Risk for financial institutions and insurance.
The Basel II OpRisk principles.
Loss database drawbacks.
Scenarios for Basel II OpRisk.
Next steps: After Basel.
10 Future-proofing against Risk.
Case study: Marconi.
Case study: The Yakuza and shareholder meetings.
Case study: Huntingdon Life Sciences (HLS).
Insurance: the buck used to stop here.
Case study: WorldCom.
Appropriate risk management structure.
Case study: BCCI bank.
Facts, not figures.
New risk focus.
11 Integrated Risk Management.
Developments in the finance sector.
Organic risk management.
Separating reputation from risk management.
Case study: Enron.
Future for risk management.
The case for organic risk management.
Case study: Hunting for staff deceit.
Unintentional (ostensibly) and legal.
Intentional and illegal.
The reigning investment ideology.
12 Summary and Conclusions.
Summary of risk management.
Identify stakeholders and interests.
Match risk appetites.
Match risk time horizons.
Organic due diligence.
Value for money.
The corporate governance model.
Keep your eyes on the prize.