Three Lines of Asset and Risk Management for the Energy & Resources Industry

The Energy & Resources Industry is an asset-intensive. Companies that manage these assets are often confronted with regulatory compliance environmental and safety threats and equipment that is old maintenance issues, as well as budget limitations. Each of these aspects could have a significant impact on the operational, external and strategic success of an organization.

A well-rounded approach to risk management is vital to guard against these risks and ensure that businesses can keep meeting the needs of its customers. This article highlights key areas of asset and risk management:

Counterparty risk management focuses on ensuring that the relationships with key players (such as prime brokers, derivative counterparties, clearing banks and custodians) are creditworthy, and includes the implementation of safe procedures to safeguard against financial loss or reputational harm caused by the failure of these partners. This is done by vetting vendors and ensuring the approval process does not only apply to the vendor but also the services they provide.

Market risk is a possibility of decrease in the value of your portfolio. Asset managers as well as risk management are concerned about it, but from different perspectives. Portfolio managers are focused on managing their exposure to markets to limit unintended market or factor bets, whereas risk managers attempt to manage crowded leverage and trades, and to be aware of the liquidity, expected volatility and cash flow.

A well-designed risk and asset management plan will enable an organization to avoid unexpected problems and maximize the impact of its assets. The three-line governance framework is a potent tool for identifying and minimizing the risks that could affect the performance of an organization.

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