Mutual Funds and Other Pooled Investments
Separately Managed Accounts SMAs, also referred to as managed accounts, wrap accounts, or individually managed accounts, are portfolios managed exclusively for the investor according to their investment, tax preferences, and requirements. The investor owns the underlying assets directly, unlike a…
Defining Risk Management
Risk is generally defined as exposure to uncertainty, such as uncertain environmental variables that cause variation in and unforeseeable outcomes. Risk can also be seen as the probability of loss or unfavorable outcome due to an action, inaction, or external…
Risk Management Framework
Risk management is the process in which the level of risk to be taken is defined, and the levels of risk are measured with the objective of maximizing the company or portfolio value. Risk management is not about minimizing risk;…
Risk Governance
Risk governance is the top-down process that directs and aligns risk management to support the goals of an enterprise. The governing body determines the goals and objectives of an organization and its risk appetite or tolerance. Risk tolerance helps in…
Risk Tolerance
At the governance level, the risk appetite of the organization must be established. Risk tolerance identifies the extent to which the organization is prepared to experience losses or opportunity costs in the effort to achieve organizational objectives. Risk Tolerance Determination The…
Risk Budgeting
Risk budgeting focuses on the implementation of the risk tolerance decisions approved by the management at the strategic or governance level. The risk budget will quantify risk by specific metrics and allocate risk across the organization. Risk Dimensions A risk…
Financial and Non-financial Sources of Risk
Financial risks originate from financial markets and might arise from changes in share prices or interest rates. Non-financial risks emanate from outside the financial market environment and could be consequences of environmental or regulatory changes or an issue with customers…
Measuring and Modifying Risks
A conversation on risk would be incomplete without a mention of the ability to measure the risk. Organizations need to evaluate the cost-benefit implications of modifying their risk profiles even as they remain within the governing body risk tolerance levels….
Structures of Securitizations
Internal credit enhancements are common for securitizations called subordination (or credit tranching). Note that a tranche is the French word for “slice,” so tranches are simply different slices of the same security. Tranches of Asset-Backed Securities Credit Tranching There could…
Residential Mortgage Loans
A mortgage loan is a loan secured by real estate in which the borrower is obliged to make a predetermined series of payments. The mortgage gives the lender the right to foreclose if the borrower defaults. Foreclosure allows the lender…
