Explanation:
Risk managers must report independently to the CIO. In an investment management firm, it is crucial to maintain a clear separation between investment activities and risk management. This is to avoid any potential conflicts of interest that may arise if risk managers report to portfolio managers, who are primarily focused on generating positive returns. By reporting directly to the CIO, risk managers can provide an independent assessment of the risks associated with the
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Q.2599 An investment management firm is looking for a fund manager and a risk manager. The firm also has an employee referral programme through which present employees may refer probable candidates for various roles. In fact, the firm has a track record of hiring managers based on internal employee recommendations. An employee recruited via an internal recommendation is neither subject to background checks nor rigorous pre-employment interviews.
The firm hires a risk manager through the internal referral programme. The risk manager is put in a team-mandated with the management of a global equity portfolio. The managers report to the head of the global equity portfolio. The risk manager observes that the firm does not have a risk committee, but the CIO does receive daily reports on various risk metrics. He also observes that the model used to value exotic derivative products was last audited two years ago. Which of the following is the most accurate statement?
A
Risk managers reporting to portfolio managers results in better risk management.
B
Risk managers reporting to portfolio managers increases the overall risk borne by a firm.
C
Risk managers must report independently to the CIO.
D
Risk managers reporting to the portfolio managers results in better risk mitigation.
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