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The importance of Risk Management under AIFMD Nordic Capital Markets Forum Marc Van de Gucht 7 May 2015
The importance of Risk Management
under AIFMD
Nordic Capital Markets Forum
Marc Van de Gucht
7 May 2015
Back to …. Risk Management under AIFMD 2
• The past: Birth of Risk Management (50ies)
• Evolution: 70ies -> 90ies
• Today: Key function under AIFMD (next to asset management)
Back to …
3
ASSET MANAGEMENT
RISK MANAGEMENT
Risk Management under AIFMD
• Permanent risk management function
• Independent • Remuneration policy • Delegation? Governance ...
… …
Risk Management under AIFM
4 Risk Management under AIFMD
• Establish a permanent risk management function
-> necessary authority and access to all relevant information?
• Functionally and hierarchically separate= ‐ Not be supervised by those responsable for operating
units ‐ Not engaged in performance of activities within
operating units
Governance
Risk Management under AIFMD 5
• Functionally and hierarchically separate (ctd)=
‐ Compensated in accordance with achievement of objectives linked to function, independently of the performance of the operating units & AIFs.
‐ Remuneration directly overseen by the remuneration committee
• Delegation (Art 20 AIFMD): yes or no? Conditions. Concept of letter-box entity
Governance
Risk Management under AIFMD 6
• Risk Management policy • Definition and
implementation of quantitative and qualitative risk limits
•Permanent risk management function
•Independent •Remuneration policy •Delegation?
Governance Risk Policy & Limits
… …
Risk Management under AIFM
Risk Management under AIFMD 7
• Appropriately documented risk management policy needed which identifies, measures, manages and monitors all relevant risks
• Annual review needed, also when material changes have been made + when internal or external events indicate an additional review is required
• Notification to relevant authority!
Risk Policy
Risk Management under AIFMD 8
Risk Policy
9 Risk Management under AIFMD
• Establish and implement quantitative and/or qualitative risk limits for each AIF
• For each AIF the need to cover at least: ‐ Market risk ‐ Credit risk ‐ Liquidity risk ‐ Counterparty risk ‐ Operational risk
• Should take into account the strategies and assets employed + any rules applicable to AIF.
• Alignment with those approved by governing body + those disclosed to investors
Risk Limits
Risk Management under AIFMD 10
Risk Limits
11 Risk Management under AIFMD
•Implementation to identify, monitor and manage
•Ensure compliance with risk limits
•Stress tests and back tests to assess adequacy -> corrective actions if needed
• Risk Management policy • Definition and implementation of quantitative and qualitative risk limits
• Permanent risk management function
• Independent • Remuneration policy • Delegation?
Governance Policy & Limits
Measurement &
Management …
Risk Management under AIFM
Risk Management under AIFMD 12
• Adopt adequate and effective arrangements, processes and techniques that uses sound and reliable data to identify, measure, manage and monitor at any given time the risks to which an AIF is or might be exposed to and their contribution to the overall risk profile
• Esure the level of risk complies with the risk limits
Measurement & management
Risk Management under AIFMD 13
• Back testing, stress stesting and scenario analysis
• Establish, implement and maintain adequate procedures that result in timely remedial action should a breach occur
Measurement & management
Risk Management under AIFMD 14
• Implementation to identify, monitor and manage
• Ensure compliance with risk limits
• Stress tests and back tests to assess adequacy -> corrective actions if needed
• Internal • External
• Risk Management policy • Definition and implementation
of quantitative and qualitative risk limits
• Permanent risk management function
• Independent • Remuneration policy • Delegation?
Governance Policy
Measurement &
management Risk
Reporting
Risk Management under AIFM
Risk Management under AIFMD 15
Internal • Reporting to board members External • Reporting to regulator:
‐ art. 110 & 111 of AIFMD-CDR: content, format and frequency
‐ Annex IV reporting templates – cf. ESMA report
Risk Reporting
Risk Management under AIFMD 16
External (ctd): • Reporting to investors:
‐ Disclosure of the risk profile of the AIF (Art 108 (4) AIFMD-CDR)
‐ Information on the risk management systems (Art 108 (5) AIFMD-CDR)
‐ Information on arrangements for liquidity management (Art 108 (2 & 3) AIFMD-CDR)
‐ Information on leverage (Art 109 (2 & 3) AIFMD-CDR)
Risk Reporting
Risk Management under AIFMD 17
18 Risk Management under AIFMD
19 Risk Management under AIFMD
…. The future ? Risk Management under AIFMD 20
Some personal considerations
… the future ?
Risk Management under AIFMD 21
Thank you for your attention !
Marc Van de Gucht
Advisor – Coordinator
Tel: +32/2/220.54.76
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