Strategic Risk Management
Our approach to risk management leverages an integrated framework that always keeps an eye on the future and the best interests of our clients.
AIMCo is in the business of prudent risk taking and risk management is at the heart of everything we do. It is the responsibility of everyone to identify, assess, manage, monitor and report risks.
We do this by:
- Leveraging our Enterprise Risk Management (ERM) Framework, which specifies how AIMCo manages all material risks across the organization. On an ongoing basis, we apply a six-step risk management process, and Top Risks are assessed semi-annually and the assessments are reviewed with the Executive Committee and the Board of Directors.
- Explicitly incorporating management of top risks in our corporate strategy and five-year plan.
- Ensuring appropriate board and executive oversight. Our Board of Directors provides ultimate risk oversight, in conjunction with management committees. The Chief Risk Officer (CRO) reports to the CEO; together they set the “tone from the top” regarding the importance of risk management in all our activities.
- Understanding client investment objectives, risk appetites and strategic plans. This is reflected in the risk limits and monitoring that governs our products and strategies and is an integral part of our ongoing client relationships.
- Promoting a risk-conscious culture by implementing risk policies, guidelines and control processes and clear roles and responsibilities within the three lines of defence model. Employees attend regular training on expected behaviors for core risk management and compliance as well as training on updated aspects of our programs that impact their daily work.
Governance Structure
2022 Key Initiatives
- Provided compliance assurance for clients and engaged with them on risk appetite and tolerance
- Integrated risk into the strategy setting and budgeting processes
- Conducted risk reviews of product descriptions and strategies, implementing risk thresholds and new risk controls where necessary
- Implemented a third-party risk management program and matured AIMCo’s model risk program
Key risks we monitor and manage
Investment Risk
Risk that an investment fails to achieve its risk-adjusted objective
- independently assess and measure the risk being taken and challenge accordingly
- seek to ensure investment strategies have a risk/return profile consistent with product descriptions
Liquidity Risk
Risk resulting from having to settle payment obligations as they come due
- seek to ensure a supply of high-quality liquid assets and diverse funding sources to meet potential liquidity demands in a stressed environment and over multiple time horizons
- stress test various scenarios to assess resiliency to a liquidity crisis; independently measure and monitor liquidity risk at the client level
Cyber Security Risk
Risk arising from unauthorized access to AIMCo's assets by internal or external parties
- maintain a dedicated team of cyber security professionals
- continue to invest in cyber resilience posture commensurate with the increased sophistication of threats
People and Culture Risk
Risk due to the failure to effectively and appropriately attract, develop, manage and retain a highly engaged, skilled and diverse workforce as well as maintain and demonstrate AIMCo’s core values and expected behaviours
- modernize our people and culture experience
- workload prioritization
- supporting mental health needs
- implement Diversity, Equity and Inclusion strategy
- develop our people through training and leadership programs
Emerging risks
As risk managers, we focus not only on current risks, but also on understanding the opportunities that we need to capture and the threats we need to manage.
Two selected emerging risks and hot topics:
Risk of Monetary Policy Error
2022 was marked by the spectre of inflation remaining above central banks’ target range in most developed countries. In response, those central banks have tightened monetary policy and embarked on an aggressive interest rate rising cycle.
Central banks continue communicating that policy rates may stay higher for longer; however, consensus among investors, seems to cast doubt on the central banks’ resolve in maintaining a restrictive monetary policy environment.
Despite central banks’ best efforts to tame inflation, it has proven to be stickier as the labour market remains tighter than anticipated and consumers, with significant accumulated savings from the pandemic, continue to show resiliency. The continued aggressive attempt by central banks to cool inflation has the risk of potential monetary policy error of going too far. This might create a set of unintended consequences.
Our Investment Risk team continues to study and monitor the evolving market conditions and ensure risks are well understood and managed to achieve our clients’ long-term goals.
Structural Changes
Political polarization, trade wars, global supply chain disruption, geopolitical tensions and climate change challenges are reshaping the world. These changes could result in a global realignment into regionally and ideologically aligned countries and a rise in global trade fragmentations with implications for inflation, capital flows, and more.
In addition, there are structural demographic changes underway due to retiring baby boomers, increased life expectancy and declining fertility rates. These changes have implications on the structure of the labour market, adding wage pressure because of the falling working-age population.
AIMCo continues to monitor the long-term trends of structural changes, including risks and opportunities presented and how they impact clients’ portfolios; asset allocation; the industries, sectors, and geographies to invest in; security selection; and more.