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ASIC alert on fund risk management

AUSTRALIA'S corporate regulator says some fund managers will need to lift their game when it comes to managing risks, with many still unprepared for the large shocks on global financial markets.

The Australian Securities and Investments Commission has focused on the issue of key-man risk among investment managers where the loss of one or two star fund managers could trigger an outflow of funds or affect investment returns.

The findings were contained in a review of the adequacy of risk management systems of the fund managers that help oversee Australia's $1.3 trillion pool of retirement savings.

The review covered some of the nations biggest fund managers, including those owned by banks, to tiny boutique operations.

ASIC commissioner Greg Tanzer said while Australian fund managers generally had adequate risk management systems, there was scope for improvement - particularly among those managers that weren't part of a bank or a large life insurer.

While key-man risk represented a major vulnerability among boutique funds, investment managers also relied too much on external compliance and risk management consultants without necessarily having the skills to independently assess the quality of their services, the ASIC review found.


A spate of market shocks over recent years has made risk-management planning all the more critical. This means funds should have enough liquidity to be able to handle sudden market downturns or client withdrawals, ASIC said.

At the same time fund managers needed to put in place succession planning or independent monitoring to address the notion of key-man risk.

''For fund managers, adequate risk management will help them to deliver their returns to retail investors and financial consumers by ''mitigating the risk of investors and consumers losing their investment or not being able to access it,'' ASIC said in its report.

Mr Tanzer said the regulator was developing guidelines for good practice on risk management. This and a focus on risk management would help play ''a fundamental role in building investor confidence for the nation's financial markets,'' he said.