Operational Risk Management in Practice: Implementation, Success Factors and Pitfalls: Efficient Implementation for Midsize and Small Asset Managers, Hedge Funds, Private Equity Funds, Family Offices

Abstract

According to the often-cited CapCo study (2003) about hedge fund failures, 50% of the failures were driven by Operational Risk. Not only for hedge funds, but also for other asset management companies – such as private equity companies, family offices or independent asset managers - operational risk management is increasingly important. In this article, we focus on Operational Risk Management for mid-sized Asset Management companies. We take a practitioner’s view of how an operational risk framework can be implemented as part of an enterprise wide Risk and Control system in a “hands-on” approach. The focus of our contribution is on practical implementation with simple tools, like Excel, rather than trying to quantify operational risk with complex mathematical formulas. We outline how a mid-sized asset management organisation can develop systematically an integrated perspective on its main risks and set priorities on how to mitigate and control these risks.