By Kristina Filipovic, Head of Risk Management, AIFM
The recent ALFI European Risk Management Conference provided invaluable insights into the latest trends and challenges in risk management impacting an industry generating around EUR 6.6 trillion of assets under management.
We found it enlightening to engage with experts and leaders in the field and to share perspectives on advancing risk strategies in today’s complex financial landscape.
Here are three key takeaways everyone in the industry should know:
1. Sustainability stress testing
Following the definition and integration of sustainability risks into the risk management framework, stress-testing the sustainability factor forms part of sustainability risk management. Various methodologies were presented, and challenges reside in defining the right methodology for the specific asset class in line with SFDR classifications, as well as overcoming data limitations.
2. Private equity risk management evolution
With the aim of safeguarding investors’ interests, the industry and especially alternative investment fund managers (AIFMs) need to adapt to more sophisticated investors having increasing expectations from the risk management function. An insightful panel discussion provided an overview on the market progress over five years, including governance framework, development of adequate key risk indicators at both fund and asset level, pre-deal investment compliance controls and integration of ICT risk management following the Digital Operational Resilience Act (DORA) Regulation which will apply as of January 2025.
3. Valuation is still under the radar following ESMA CSA
Valuation methodologies and governance are key points of attention. With AIFMD II coming into force, it’s expected that the frequency of assets’ valuation ties to the frequency of the net asset value (NAV).
The regulatory landscape was further described with the publication of the CSSF Circular 24/856 and its main changes, as well as the expected repealing of the CSSF Circular 11/512. Recent inspections exposed shortcomings which focused on sustainability risks, liquidity risk, valuation risk and leverage.
The ALFI European Risk Management Conference made it clear risk management is more important than ever before, and trends we’re seeing now will continue to influence the wider industry in the coming years.
