Angel Bernal Robles started his career as a business analyst, later migrating into risk management and acquisitions. In the following article, Angel Bernal Robles discusses how effective risk management is a critical component of successful asset management, as it enables investors to navigate volatile markets and minimize potential losses.
Asset management must be exacted in a way that maximizes value while simultaneously minimizing potential risks. One of the most important aspects of asset management is managing the risks associated with it.
Angel Bernal Robles explains that the benefits of risk management involve maximized returns and regulatory compliance. This can be achieved through sales monitoring, performance measurement, and through meticulous investment strategies and guidelines when relating to brokers.
The protection, analysis, prediction, and overall management of the potential risk posed to an individual or organization’s assets is known as risk management. In the following article, Angel Bernal Robles will explore the levels of complexity that are entwined in risk management.
Why Risk Management is Important in Asset Management
Angel Bernal Robles reports that asset management involves a significant amount of risk. Usually, this risk is centered around credit, market, operational, legal, liquid assets reputation, and cybersecurity. With a lack of proper risk management, companies may not be able to achieve their goals or protect their assets. Here are some reasons why risk management is important in asset management:
Maximizing returns goes hand in hand with risk management, and all effective risk management strategies should, if they’re of value, help to identify and manage risks that could negatively impact investment returns. This allows asset managers to make informed decisions and maximize returns for investors.
Compliance with regulatory requirements is a critical component of asset management. Angel Bernal Robles explains that aging assets and changing regulatory compliance requirements are always becoming more stringent. While many of the challenges of asset ownership and operation are focused on cost mitigation, ensuring ongoing compliance is key.
Regular audits and monitoring can help keep an eye on current regulations, and course-correction will help ensure that legality is kept in place.
Angel Bernal Robles says that a company is only as good as its reputation. Reputations, as any business owner can attest, are easily damaged. Part of a company’s risk management plan should involve strategic ways to keep a reputation afloat. This includes preventing potential impacts, and damage control when things go south.
The Link between Risk Management and Asset Management
The link between risk management and asset management is apparent – here, Angel Bernal Robles further highlights some of the areas in which these two principles are intrinsically linked.
As asset managers, part of the job description involves conducting regular risk assessments. In doing so, managers are empowered to identify potential risks proactively. With a proactive approach, it’s easier to mitigate and manage.
The risk assessment process involves several complex steps. Asset managers first identify potential risks that could impact the portfolio. These risks might include those related to market conditions, economic trends, geopolitical events, or other factors.
Investment Strategies and Guidelines
Investment strategies must take into account the level of potential risk that their investors are able – and willing – to tolerate. That said, Angel Bernal Robles explains that risk management can help to align investment strategies with investor risk preferences, which should be reviewed and refreshed regularly, especially in volatile markets.
As for investment guidelines, front-line intervention is key. Brokers are fully aware of their clients and investment options at all times. In turn, asset managers should keep a keen eye trained on broker participation in order to avoid conflicts of interest.
Angel Bernal Robles says that performance measurement should be maintained constantly. Effective performance measurement requires taking into account the level of risk associated with an investment. Asset managers must measure performance against risk-adjusted benchmarks to accurately assess the success of their strategies.
Monitoring Sales Practices
Taking ownership of sales practices as an element of their current production lines should be a top priority for first-line operational managers. Second-line compliance functions can also be vital in overseeing sales practices. This ties back into regulatory compliance; careful monitoring of these functions will help dodge illicit financial gain.
Angel Bernal Robles says that risk management is an essential component of asset management, and effective risk management strategies are necessary for achieving the goals of asset management.
By identifying and assessing potential risks and implementing strategies to mitigate or avoid them, asset managers can protect assets, maximize returns, ensure regulatory compliance, and manage reputational risks. The close link between risk management and asset management highlights the importance of integrating risk management into asset management processes.