Principle
The managing agent should establish an investment risk policy which sets out appropriate overall risk tolerance levels and asset and counterparty exposure limits
Minimum standards
- The investment risk policy should set out the limits of acceptability for any assets to be held as syndicate assets and should form the general framework for the investment of syndicate assets
- The investment risk policy should include appropriate processes and procedures to enable the managing agent to assess, manage, monitor, control and report the risks to which syndicate assets are exposed
- The investment risk policy should at least take account of the following issues:
1) Market risk - the policy should consider the appropriate mix of assets and exposure and concentration limits
2) Credit risk - the policy should consider and set credit risk limits which reflect the credit quality and diversification appropriate to the syndicate's business
3) Foreign exchange risk - the policy should consider the management of foreign exchange risk and any limits on such exposure
4) Liquidity - the policy should state how the appropriate level of liquidity for the syndicate's business is determined and how this is related to cash flows and realistic disaster scenarios
5) Legal framework - adherence to the laws and requirements applicable to different jurisdictions and trust funds and compliance with trust law and trust deeds
