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US funds lag in risk management

US public sector funds spend less than half the time and resources on risk management than the average of their global peers according to a survey of 58 funds by Canadian-based CEM Benchmarking.

The qualitative Global Investment Risk Management and Practices report looked at the range of practices in risk management across funds in 14 countries including the US, Canada, Netherlands, Norway, Sweden, Denmark, Finland, Australia and New Zealand with $1.8 trillion in total assets.

The Dutch funds were the most formal in their measurement of risk.

According to Terrie Miller, chief operating officer of CEM Benchmarking, after adjusting for size the average number of people dedicated to risk management for US public funds is just half the global average.

US public funds are also the funds that are least likely to measure surplus risk.

The report looked at the investment risks monitored, frequency of monitoring, the beliefs and regulations that affect what is monitored, and governance practices and organisational structure.

Across all of the funds the average number of people dedicated to risk measurement and management is 4.7, with 52 per cent of those set up as a separate risk group.

The survey measured three types of risk and found 88 per cent of funds measured active management risk, volatility or tracking error; 28 per cent of funds measured absolute risk, or the pure volatility of returns; 48 per cent measured surplus risk, and 7 per cent did not measure anything.

Two-thirds of the funds surveyed have a board-level approved risk for total fund and of those there are various levels of risk approval by the board.

About 5 per cent of funds have the board approving risk at the individual portfolio level; 38 per cent have board approval at the asset class level while 45 per cent only approve the total fund level of risk.

Of the funds surveyed, 32 were public funds, 20 were corporates and six had no liabilities.

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