The Energy & Resources industry is highly asset-intensive, and the companies who manage them are frequently confronted with regulatory compliance security and environmental risks, older assets, maintenance issues and budgetary constraints. These factors could be a major influence on an organization’s performance successful external, strategic and internal success.
A comprehensive strategy for managing risk is essential to protect against these threats and ensure that businesses can remain in a position to meet the demands of its customers. This article outlines the most important aspects of asset and risk management:
Counterparty risk management focuses on ensuring that the relationships with key players (such as prime brokers and derivative counterparties, as well as clearing banks and custodians) are financially sound, and it involves implementing failsafe procedures that protect against reputational or financial harm caused by the failure of these partners. This is done by vetting vendors and making sure that the approval process applies not only to the vendor but also to the particular service they provide.
Market risk is the potential for a decrease in portfolio value, and it is a common challenge that both asset managers and risk managers deal with but from different perspectives. Managers of portfolios focus on managing their market exposures to minimize unintended market and factor bets, while risk managers are attempting to manage the influx of trades and leverage, and to monitor liquidity as well as cash flow.
A sound asset and risk management program can help an organization avoid unexpected problems and maximize the value of its assets. The three-line governance framework is a useful tool to identify and reduce the risks that can affect the performance of an organization.