As the Covid-19 pandemic continues to evolve, the damage to the economy looks likely to be deep and long lasting. Asset managers are not only dealing with a myriad of temporary guidelines from national and international bodies: they are also putting their own measures in place to mitigate the economic impact of the virus and safeguard investor value—measures that must be digested, implemented, and communicated to their stakeholders. The senior management of fund houses are leading the charge on navigating these challenges.
Keeping information flowing at this difficult time will be key, not least when it comes to communicating with the board in a concise and effective manner. Comprehensive and well-thought out Covid-19 impact reporting will likely become a staple in asset management board packs around the globe. Such a reporting can be built upon the three key steps of risk management outlined below.
Step 1: Identify, classify and prioritize risks
In this first step of the process, senior management aims to gain a comprehensive understanding of the risks at stake.
- Identification All departments should be involved in the identification of risks at this time: a collegiate approach will help senior management get a real understanding of current and potential issues throughout the fund house.
- Classification With a full list in place, senior management can divide risks up into two distinct groupings: materialized vs. unmaterialized risks. It is important to distinguish between what is happening now, versus what may potentially come in the future. Each grouping will be processed differently in the next step of the process: outlining mitigation measures and assessing vulnerability.
- Prioritization Each of these risks can be assessed for impact (high, medium or low). This prioritization will vary depending on the strategy and risk appetite of each individual asset manager.
Step 2: Outline mitigation measures and assess vulnerability
In this next step, materialized and unmaterialized risks will be processed in different ways to give more powerful insights to the board.
- Outline mitigation measures designed and implemented to tackle all the risks you have classified as “materialized” and prioritized as “high”.
- Perform a vulnerability assessment of the unmaterialized risks prioritized as high by elaborating on the likelihood of the risk occurring, and the potential impact.
When reporting to the governing body of the asset manager or managed funds, senior management can now focus their analysis on the risks that are included in Step 2.
Step 3: Provide an overview of all temporary regulations
Governing bodies will also wish to be kept abreast of how senior management is dealing with the growing number of temporary provisions that regulators have put in place to ease the operational burden on the industry. These provisions can be framed in the context of the management company.
- Make a detailed list This entails making an initial inventory of existing provisions and constantly monitoring and complementing the inventory with newly published ones.
- Highlight key areas of focus By extracting the relevant elements for the business at hand, you can raise the most pressing points to the board.
The oversight of boards will be critical in this period, as swift and decisive action is taken to tackle the crisis. All this must be underpinned by concise and effective communication. Streamlining efforts along the lines described above so as to create robust board reports comprising an assessment of how the asset manager is handling the crisis resulting from Covid-19. This will set firms in good stead for fruitful discussions that determine the right decisions and actions when building for the future.
We have created a template to help you structure your report around these three steps. They may constitute a powerful addition to your board reporting pack and equip senior managers and governing bodies with meaningful insights to navigate their business through rough weeks, or perhaps months to come.
You can prepare the impact assessment section of your report using our easy-to-adapt Excel template here.