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2012 US asset management risk survey: risk glossary – EY – Asset Management - EY - United States

US asset management risk survey 2012

Asset management risk glossary

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Risk managers navigate a landscape that comprises a wide array of risks. Our glossary gives you a snapshot of each type.

Compliance risk

The risk of failure by the company to meet its regulatory requirements or manage changes in regulatory requirements with respect to new legislation, resulting in investigations, fines or regulatory sanctions

Counterparty risk

Counterparty risk is default of a trade counterparty that fails to deliver the shares or cash for a transaction. This risk is primarily relevant for OTC (over-the-counter) transactions that are conducted with client capital, and therefore would potentially require the client to be made whole.

Investment risk

Investment risk is commonly defined as positive or negative derivation from an expected outcome. Asset managers typically regard investment risk as a measure of the expected return given the level of risk tolerance relative to agreed market or internally set benchmarks. Some of these are typically specified within the asset manager’s risk appetite, often expressed at a corporate as well as at a client level.

Liquidity risk

The risk that the firm or fund, although solvent, either does not have sufficient available resources to enable it to meet its obligations (i.e., redemptions) as they come due, or can secure them only at excessive cost

Market risk

The risk of loss arising from fluctuations in values of, or income from, assets or arising from fluctuations in supply and demand affecting market prices and rates

Operational risk

The risk of loss resulting from inadequate or failed internal processes, people or systems, or from external warrants

Portfolio style drift risk

The risk that portfolio holdings include investments and weightings of derivative, equity or fixed income securities that are inconsistent with the mandate and performance targets that form the basis for investor suitability and risk tolerances

Reporting risk

The risk that reporting to external clients, regulatory and financial organizations contains inaccurate or incomplete information leading to financial or reputational loss

Reputational risk

The risk that an organization loses revenue or intrinsic value as a result of an event (real or perceived) that calls into question the organization’s integrity, ability or its quality of products and services

Strategic risk

The risk that an organization’s objectives for revenue growth, profitability and market position are not attained due to insufficient planning or capabilities to effectively manage internal and/or external events that impact the achievement of goals

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