CalPERS collaborates on enterprise risk assessment

The speed with which CalPERS can fulfil its desire to become a risk intelligent organisation has been given a reality check with discussions between the Californian fund and TIAA-CREF revealing it takes two to five years to fully implement an effective enterprise risk-management structure, and importantly a risk intelligent culture in an organisation.

Members of the governance risk management initiative at CalPERS have met with senior managing director and risk manager for TIAA-CREF, Erwin Martens, to gain some knowledge of the organisational structures and analytical tools put in place when it developed an enterprise risk-management structure and team in 2003.

In discussing the development of the structure, Martens warned of the long timeframe indicating it remained a work in progress.

He said adopting an enterprise approach to managing risk involved the creation of a risk-aware management culture. He shared several analytical tools for identifying, analysing and monitoring risk as well as organisation and structural insights

The CalPERS’ governance risk-management initiative has just completed phase III of a five-phase scoping plan of risk management which included a series of focus groups revealing  a number of themes with regard to attitude to risk at the fund:

1. Risk is most often viewed in terms of short-term or immediate consequences rather than with a longer-term perspective

2. Management tends to react to situations rather than proactively try to forecast risk exposure

3. The organisation has procedures and in some instances policies in place however, over the years the practice rather than procedures and policy apparently provide guidance for operations

4. The organisation has to make decisions together to effectively manage risk

5. Compliance and legal risks were thought to be the lowest

6. Improving all aspects of communication is seen as one of the most immediate benefits of adopting an enterprise risk-management strategy

7. There is a risk in not providing the board with complete information

Phase IV is expected to be completed by the end of May with preliminary recommendations provided to a risk-management committee meeting in August.

The investment office is also conducting a rigorous review of its risk management organisation and approaches to enable a complimentary approach to risk management.