Synopsis
More than ever before, institutional investors and their consultants are probing investment management firms’ risk management policies and procedures. Beyond market, credit and liquidity risk, their concern extends to investment managers’ back- and middle-office functions. For example, investors and consultants are asking: • Is the firm managed and staffed by qualified people? • Are workflows properly documented and consistently followed? • Are employees cross-trained to handle one another’s jobs? • Does the firm keep track of collateral in the hands of prime brokers? • How does the firm plan ahead for changes in the regulatory and competitive environment? In the aftermath of the global financial crisis, clients and prospects want to know the answers to these and many other questions. And they will not entrust assets to organizations whose day-to-day operations are chaotic or whose long-term business prospects are doubtful. “In worst-case scenarios, an investment firm’s failure to identify and mitigate operational risk can result in significant direct costs and a devastating loss of reputation,” write Holly H. Miller and Philip Lawton. “It may take years to reassure investors, regulators and trading partners that the firm is well-managed.” Internationally known as dynamic speakers and engaging writers, the authors of The Top Ten Operational Risks draw upon their extensive practical experience to offer clear, compelling and—above all—useful advice about how to recognize and lessen the risk of loss due to inadequate internal processes, people and systems or external events. Starting with complacency on the part of senior management, each of this book’s central chapters addresses one of the ways in which investment management firms may be exposed to unwelcome surprises. There are succinct, readable essays on staffing, training and the special attention due hand-offs among individuals, teams, systems and external service providers. Other chapters focus on technology, workflows and aspects of the segregation of duties that are especially significant in the investment management industry, such as observing the distinction between the firm and the funds it manages. The authors additionally bring their experience to bear on reconciliation gaps, the importance of knowing the firm’s counterparties and the regulatory regimes to which they are answerable, and the challenges of effective strategic planning in a rapidly changing marketplace. C-level executives and middle managers in sales and marketing, client and consultant relations, compliance, human resources and internal audit will find The Top Ten Operational Risks intriguing. Their colleagues in risk management and investment operations will find it indispensible. As Milton Ezrati writes in the foreword, “The investment of an hour or two will offer managers numerous ways to improve their firm and their client service and, critically, a means to guard against rather large, unexpected expenses.”
About the Author
Holly H. Miller is the founding partner of Stone House Consulting, LLC, providing strategic, operational and IT consulting services to investment managers and hedge funds. Prior to founding Stone House Consulting, she was Chief Operating Officer at M.D. Sass, managing $17 billion in hedge funds, private equity funds, traditional separate accounts and wrap-fee accounts across 18 investment strategies and 15 investment management firms. During her 30-year career to date, Ms. Miller was East Coast Region Manager for Citisoft, Inc. where her clients included several of the world’s largest asset managers. She has also managed operations teams for Bank Julius Baer, J.&W. Seligman and Citigroup. Ms. Miller is a recognized expert in middle- and back-office outsourcing with an exceptional understanding of the operational and IT challenges faced by the industry and a proven track record of designing and implementing large, enterprise-wide change initiatives. She is a popular speaker at investment industry conferences and publishes regularly in trade publications and at http:// articles.stonehouseconsulting.com. Ms. Miller lives in a 325-year-old stone house in Thornton, PA with her Labrador retrievers, Cromwell and Essex. Philip Lawton, CFA, CMA, CIPM, joined Stone House Consulting, LLC in 2010 as a partner. Mr. Lawton was the founding head of the Certificate in Investment Performance Measurement (CIPM®) program at CFA Institute. His previous experience includes working as an investment professional at State Street Investment Analytics, Deutsche Bank, Citibank and The Travelers and as a corporate cash manager at Aetna Life & Casualty. Mr. Lawton earned a doctorate in philosophy in the French-speaking section of The Catholic University of Louvain, Belgium, and an MBA degree at Northeastern University. His books and articles in philosophy have been published by Harper & Row, Philosophy Today, Het Tijdschrift voor Filosofie, Philosophy Research Archives, University Press of America, Philosophy & Theology, and International Studies in the Philosophy of Science. Mr. Lawton is also the co-editor of Investment Performance Measurement: Evaluating and Presenting Results (Wiley, 2009) and the author or co-author of articles published by CFA Institute, Performance Measurement and Client Reporting Review and The Journal of Wealth Management. He lives in Keswick, VA with his wife, Dena Lange, and their dog, Nora.
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