Reflections on Buy-Side Risk Management After (or Between) the Storms

Abstract

This article highlights and emphasizes the importance of eight specific principles of risk management. The credit crisis of 2007–2009 has clearly reaffirmed the importance of a strong and effective risk management function, and these eight principles will help buy-side institutions think through their risk management organizations. In this article, Golub and Crum make the case for the importance of institutional buy-in, alignment and management of institutional interests, getting risk takers to think like risk managers, a fully engaged but independent risk management organization, understanding fiduciary obligations, bottom-up risk management, and constant monitoring of risk models for accuracy and relevance—and that risk management does not mean risk avoidance.

TOPICS: VAR and use of alternative risk measures of trading risk, risk management