While risk is a necessary part of doing business for any investment fund, it must be understood to ensure that the risks taken are appropriate for the returns anticipated. 

Understanding and managing the risks that the Fund faces – investment, operational, legal, reputational and strategic – is central to the work of the Guardians.

We have developed risk management policies, procedures, and other internal controls for application by our staff, external investment managers, and other expert service providers. Our approach to managing investment risks is set out in our Statement of Investment Policies, Standards and Procedures. We monitor compliance with the relevant policies and procedures as well as compliance by external managers. Risk management is further supported by our Board and staff Codes of Conduct including conflict of interest procedures, defined roles and responsibilities and individual and collective accountability processes.

Our risk categories

Our five major risk categories are:

• Investment risk: The risk inherent in achieving investment goals and objectives (that is, the risk of not achieving them), including market, credit, counterparty, manager and liquidity risk
• Strategic risk: The risk that we make inappropriate strategic choices or that we are unable to successfully implement selected strategies
• Legislative and regulatory risk: The risk of financial loss or reputational damage due to non-compliance with actual or proposed laws, rules and regulations and prescribed industry practices
• Operational risk: The risk of financial loss from inadequate or failed internal processes, people or systems, or from external factors
• Reputation risk: Risk of loss of reputation or credibility due to internal or external factors

How we manage risk

The Board is responsible for reviewing and approving the Guardians’ risk-management strategy. It does this on a regular schedule that is set out in the Board calendar. The Board also considers special reviews undertaken by the Guardians’ Risk Committee on a case-by-case basis.

The Board has developed a risk-appetite statement outlining its expectations of the level of risk that is appropriate for the Fund to take on. This statement can be found at Schedule 2 of the Guardians’ Risk Management Policy. The Guardians’ performance against this statement is measured and reported to the Board on a regular basis, with any major breaches being notified on an exception basis.

The Audit Committee reviews the reports of management, and of the external and internal auditors, on the effectiveness of systems for internal control and financial reporting.

The Board delegates day-to-day management of risk to the Chief Executive Officer. Inherent in this delegation is a desire to ensure that day-to-day responsibility for risk management is at the business unit level, where risk is seen as part of the overall business process, and a robust framework of identification, evaluation, monitoring and control exists.