LO 69.6: Describe the objectives and actions of a risk management unit in an

LO 69.6: Describe the objectives and actions of a risk management unit in an investment management firm.
A risk management unit (RMU) monitors an investment management entitys portfolio risk exposure and ascertains that the exposures are authorized and consistent with the risk budgets previously set. To ensure proper segregation of duties, it is crucial that the risk management function has an independent reporting line to senior management.
The objectives of a RMU include: Gathering, monitoring, analyzing, and distributing risk data to managers, clients,
and senior management. Accurate and relevant information must be provided to the appropriate person(s) at the appropriate time(s). .Assisting the entity in formulating a systematic and rigorous method as to how risks are identified and dealt with. Promotion of the entitys risk culture and best risk practices is crucial here.
Going beyond merely providing information by taking the initiative to research relevant

risk topics that will affect the firm.
Monitoring trends in risk on a continual basis and promptly reporting unusual events to
management before they become significant problems. Promoting discussion throughout the entity and developing a process as to how risk data and issues are discussed and implemented within the entity. Promoting a greater sense of risk awareness (culture) within the entity.
Ensuring that transactions that are authorized are consistent with guidance provided to
management and with client expectations. Identifying and developing risk measurement and performance attribution analytical tools.
Gathering risk data to be analyzed in making portfolio manager assessments and market
environment assessments. Providing the management team with information to better comprehend risk in individual portfolios as well as the source of performance.
Measuring risk within an entity. In other words, measuring how consistent portfolio
managers are with respect to product objectives, management expectations, and client objectives. Significant deviations are brought to the attention of appropriate management to provide a basis for correction.
Professors Note: You may see references elsewhere to an Independent Risk Oversight Unit. This is the same concept as RMU. Both measure and manage risk exposure and operate as an independent business unit.
2018 Kaplan, Inc.
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Topic 69 Cross Reference to GARP Assigned Reading – Litterman, Chapter 17

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