The Energy & Resources industry is asset-intensive, and the organizations who manage them are frequently confronted with regulatory compliance as well as environmental and safety threats and old assets, maintenance issues, and budgetary limitations. All of these issues could have an impact on the external, operational, and strategic success of an organization.
A comprehensive risk management strategy is critical to protecting against these threats and ensure that the company continues to meet the demands of its clients. This article outlines the most important areas of asset and risk management:
Counterparty risk management focuses on ensuring that important relationships (such as prime brokers, derivative counterparties, clearing banks and custodians) are creditworthy and that includes implementing safe procedures to safeguard against reputational or financial damage resulting from the failure of these partners. This is done by vetting suppliers and ensuring that the approval process is not only to the vendor but also to the particular service they offer.
Market risk is the potential for a decline in portfolio value, and it is a frequent issue that asset managers as well as risk managers have to deal with but from different perspectives. Portfolio managers manage their exposures to the market in order to minimize unintended bets on markets and factors, while risk management focuses on tackling crowded trades, liquidity, leverage, volatility and cash flow.
A robust asset and risk management plan is crucial to avoid unexpected problems and maximising the impact of an organization’s assets. The three-line governance framework is a potent instrument for identifying and minimizing the risks that could negatively impact the performance of an organization.