Risk Management
Riskhantering
Risk management is not about eliminating risk but about keeping it within limits we can bear. Through pre-trade checks, cross-verification, committee deliberation, and the principle of same-day resolution, BNB Asset Management looks at risk in advance and deals with it promptly.
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How We View Risk
Before risk is something to avoid, it is something to understand. The risks of IPO investing arise not only from the direction of the market as a whole but also from sources particular to this field, such as supply and demand in the IPO market and the valuation of assets that have no market price.
BNB looks at risk by type and decides in advance which procedures and committees are responsible for each. We do so in order not to be searching for a response only after a risk has materialized.
Market and Supply-Demand
Alongside company fundamentals, we analyze IPO market sentiment, the supply-demand environment, price attractiveness relative to the peer group, and potential risk factors from multiple angles.
Asset Valuation
Non-marketable assets with no market price, such as Pre-IPO holdings, are valued using the fair-value methodology set by the Collective Investment Property Valuation Committee, and we oversee the independence, consistency, and transparency of valuation.
Escalating Losses
We limit volatility risk through a loss-cut principle, and the Risk Management Working Committee makes the final decision on whether to defer the stop-loss for positions whose losses exceed a set level.
New Products
Developing new products such as new funds, or pursuing new businesses, requires a prior risk review and approval by the Risk Management Working Committee.
Crisis Situations
We maintain company-wide crisis management measures and a business continuity plan (BCP) in preparation for market shocks and similar events, and the committee deliberates on matters relating to the deferral of redemptions due to impairment of collective investment property.
- Risk management is a framework for managing the possibility of loss; it does not guarantee investment principal or returns.
Emphasis on pre-compliance management through cross-checks between the investment team and the compliance team, and regular internal training
Establishment of management guidelines for company-wide response and recurrence prevention when a risk event occurs
Monitoring
Occurrence of a risk event
Same-Day Resolution Principle
- Devise scenario-specific handling measures
- Immediately implement necessary actions
Establishment of Recurrence-Prevention Guidelines
- Thorough root-cause investigation and training
- Establishment of management guidelines for the relevant operations
- Verification of implementation through regular internal audits
Who Manages Risk
Risk management is not the work of a single department. The investment team, the compliance function, and the committees each examine the same risks from a different angle.
| Function | Role |
|---|---|
| Chief Risk Officer (CRO) | This role is held concurrently by the Compliance Officer, who is responsible for risk management from a position independent of the investment organization. |
| Compliance Team | Enters and maintains pre-compliance items in the trading system, periodically reviews compliance items, and conducts regular internal audits. |
| Investment Team | Implements review findings immediately and, when an issue arises, reports on the resolution plan and the circumstances. |
| Risk Management Working Committee | Deliberates on risk management policies and risk criteria, follow-up measures when permitted risk limits are breached, business continuity planning, and prior risk reviews of new products. |
| Collective Investment Property Valuation Committee | Oversees the independence and consistency of the fair valuation of collective investment property and, when a valuation error occurs, deliberates on the cause analysis and the correction and disclosure procedures. |
The kinds of risk we watch
An asset manager does not watch a single kind of risk in the course of managing money. We divide it into five: market, credit, liquidity, operational, and legal and compliance risk.
For each risk we decide in advance what we watch and how we deal with it. The Chief Risk Officer role is held by the Compliance Officer, who is responsible for risk management from a position independent of the investment organization.
| Risk | What we watch | How we manage it |
|---|---|---|
| Market risk | We watch how the value of holdings changes when market prices move, including interest rates, share prices and exchange rates. Supply and demand in the IPO market, and price movement before and after listing, are part of the same watch. | Before an investment we review price and supply-demand. While we hold a position we monitor movement. When movement grows, we deal with it through the checks already set and through deliberation by the Risk Management Working Committee. |
| Credit risk | We watch the chance that an investee or a counterparty will not pay principal or interest on time, or will not perform a contractual duty on time. | We check financial condition and contract terms, and we review whether risk is concentrating on one name. |
| Liquidity risk | We watch whether an asset is hard to turn into cash at a fair price when needed, and whether cash for redemptions or payments may fall short. | We look ahead at the redemption schedule and at how readily assets can be turned into cash. If deferral of redemptions becomes an issue, for example because collective investment property is impaired, the committee deliberates. |
| Operational risk | We watch the chance of loss that arises in the course of the work, from staff error, a system failure, a missed procedure or an outside event. | We separate duties and procedures, and we check them through reviews by the compliance team and through internal audit. We keep a business continuity plan (BCP) for events such as a market shock. |
| Legal and compliance risk | We watch the chance of a sanction, a dispute or damage to trust if a statute, a collective investment agreement or an internal rule is not observed. | The Compliance Officer also serves as Chief Risk Officer and carries out prior checks and periodic checks from a position independent of the investment organization. New products, including new funds, go through a prior risk review by the Risk Management Working Committee. |
- Dividing risk and managing it is a way of dealing with the possibility of loss. It does not guarantee investment principal or returns.
