The Energy & Resources Industry is asset-intensive. Companies that manage these assets are often faced by regulatory compliance environmental and safety threats in addition to aging equipment maintenance issues, and budgetary limits. All of these issues can be a major influence on an organization’s internal, external and strategic success.
A well-rounded strategy for managing risk is essential to protect against these threats and to ensure that a business can continue to meet the needs of its customers. This article outlines the most important areas of asset and risk management:
Counterparty risk management focuses on ensuring that the relationships with key players (such as prime brokers derivative counterparties, clearing banks and custodians) are financially sound, and includes the implementation of failsafe procedures that protect against reputational or financial damage resulting from the failure of those partners. This is done through vetting vendors, and ensuring that the approval process does not only apply to the vendor but as well to the services they offer.
Market risk is a possibility of decline in the value of a portfolio. Both asset managers and risk management are worried about it, but from slightly differing perspectives. Portfolio managers manage their exposure to markets to limit unintentional bets on markets and factors and risk management focuses on managing crowded markets, leverage, liquidity, expected volatility and cash flow.
A solid asset and risk management program is essential to preventing unexpected issues and maximizing the impact of an organization’s assets. The three lines of defense governance framework is an effective approach to identifying and mitigating the risks that can affect the organization’s performance.