The key strategic risks in fund management are:
- Credit Risk
The risk of a bond (or other security) defaulting on coupon payments or in paying back the principal amount on maturity. Even when there is no default, the price of a security may change with expected changes in the credit rating of the issuer.
- Liquidity Risk
The risk of excessive strain on the fund due to cash-flow mismatch, especially high value redemptions causing liquidity crunch.
The key operational risks in fund management is:
- Front Office Risks
Front Running by dealer may result into reputational risk and financial loss to the Fund. It may also include leakage of sensitive information to insiders or breach of investment restrictions / norms.
- Market Risk
As the share prices, valuations and/ or interest rates of securities in which the scheme invests fluctuate, the value of investments in the scheme may appreciate/ depreciate.
- Counter-Party Risk
The risk of failure of a third party to perform its function(s) resulting in financial, reputational and operational damage to the Fund and / or its investors.
- Settlement Risk
The risk that purchase / sale of securities does not result in the movement of securities and/or funds as envisaged (due to failure of counterparty, mis-computation of accrued interest, failure to compensate for corporate action, etc.).
- Breach of Confidentiality
Misuse of investment or investor information resulting in investor information landing in the hands of unauthorized persons, insider trading, front running, etc.
- Technology Risks
Unauthorized access, inadequacy of business continuity protocol, limited audit trails, etc.
Computation of incorrect NAV, management override, employee frauds including collusion and conflicting functions, insider trading, fraudulent financial reporting, misfeasance by brokers, etc.
- Reporting Risk
It may include publishing of wrong NAV (or other facts) by the fund.
- Compliance Risk
It includes non-adherences with regulatory requirements leading to a loss of reputation and loss of investor confidence, and violation of MAS regulations.
The Board of Directors and senior management play pivotal roles in ensuring a sound risk management culture and environment. They are entrusted to be the custodians of good corporate governance, the prerequisite for sound risk management. The Company has put in place an internal governance structure with defined roles and responsibilities of every constituent of the system.
The Board has the ultimate responsibility to (a) approve and oversee implementation of the Company’s overall strategic direction, risk appetite and strategy and related policies; (b) establish and communicate corporate culture and values; and (c) establish conflicts of interest policies and strong control environment.