A Better Grasp of Non-financial Risks

The European Fund Management Industry Needs a Better Grasp of Non-financial Risks — December 2010

Foreword

This publication, “The European Fund Management Industry Needs a Better Grasp of Non-Financial Risks,” is drawn from the CACEIS research chair—“Risk and Regulation in the European Fund Management Industry”—at EDHEC-Risk Institute. This chair deals with the issue of non- financial risk and performance in a changing regulatory framework for the European fund management industry. It analyses the major risks those in the industry face as a result of regulation and of their practices, assessing the importance and impact of these risks in terms of solvency and business models, and proposing methods to attenuate them. In this publication we look at how non- financial risks and failures have impacted the regulatory agenda in Europe and trace the management of liquidity, counterparty, compliance, misinformation, and other financial risks in the fund industry. By identifying the distribution of risks and responsibilities in the industry, we examine how convergence between country regulations could be achieved. Finally, we assess how fund unit-holders can best be protected with appropriate regulations, improved risk management practices, and greater transparency.

We would like to extend our warm thanks to our partners at CACEIS for their collaboration on the project and their commitment to this research chair. Our thanks in particular to Eric Derobert, Jean- Marc Eyssautier, and Anne Landier-Juglar, for allowing us to benefit from their expertise.

We wish you a pleasant and informative read.

Noël Amenc Professor of Finance Director of EDHEC-Risk

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An EDHEC-Risk Publication