Riskmanagement

Gustavo Ballvé on January 22nd, 2015

McKinsey & Co’s new article on “Confronting corruption” seems tailor made for the current Brazilian news cycle. How about avoiding corruption? It is impossible for a huge company to control every worker everywhere and all the time, right? Yes, but any company can mitigate the risk by avoiding incentive systems and a corporate culture that favors “shortcuts”. I mention a Harvard Business School course I attended in December 2013 and link to various sources on this subject.

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Gustavo Ballvé on November 13th, 2013

I am tweeting tidbits from a HBR Webinar by Bob Kaplan called Building the better framework to manage risk. You can also follow the hashtag #HBRwebinar.

Read more about Live tweets: HBR webinar on risk management

Gustavo Ballvé on July 26th, 2013

Probably the most re-tweeted and linked-to article today, this piece by Jason Zweig called “Plenty to Blame for High-Pressure Hedge-Fund Culture” rings a major bell with me: the (ir)responsibility of investors. Apologizing for the spoiler, the main point is summarized in the last paragraph: ” ‘Sophisticated’ institutional investors still insist on believing in a Tooth Fairy that can somehow miraculously provide market-beating returns for everyone. Maybe that is the biggest crime of all.” Another point that should be made is: forget “blame”! “Blame” comes after something goes wrong while the process can be flawed even if it all goes according to “plan”. What I mean is that the search and analysis of irresponsible processes (not outcomes) should be an ongoing activity for investors of all sizes.

Read more about The other side of the blame game

Gustavo Ballvé on June 6th, 2013

Great post by Bronte Capital’s John Hempton on (well, kind of) exotic risk management. Quick, fun and thought-provoking read that raises the will to re-visit other texts.

Read more about “Empirical” lessons in risk management

Gustavo Ballvé on March 21st, 2013

We did this when MF Global collapsed, so we now have the damning 307-page report on JP Morgan’s “disastrous Whale trades” (and the 600-page annex). Before you say “when will we ever learn?”, say “we’re only human” (or sing it if you’re a Billy Joel fan) and strive to 1) be as aware of your own mental traps as you can be and 2) create and ruthlessly enforce policies that mitigate such issues in your firm/ unit/ practice.

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Gustavo Ballvé on January 29th, 2013

Great article by Jared Diamond on “constructive paranoia” – a state of hypervigilance to events of seemingly small risk but high frequency (or higher than estimated), such as – in his example – falling in the shower. Since we are terrible at estimating risk anyway, it pays to be cautious and vigilant.

Read more about Death by low-risk, high-frequency events

Gustavo Ballvé on January 29th, 2012

We’re still digesting the MF Global collapse, and we’re guessing it will be the case study for the intersection of risk management and culture/ incentive systems – not that it could ever be separated, but this was the case that really drove it home because of the inconceivable use of client funds… We highlight several articles on counterparty risk, fraud and MF Global inside.

Read more about More on counterparty risk

Gustavo Ballvé on January 18th, 2012

It would be easy to dismiss anything coming from Citigroup, not exactly the bastion of sound risk management practices. And it does appear like Vikram Pandit’s main suggestion here is, at first glance, simplistic yet hard to implement. Anyway, moves in the right direction are welcome, but on risk management issues, we tend to defer to Taleb (new talk inside).

Read more about Citi’s CEO on risk management

Gustavo Ballvé on January 9th, 2012

Just as in our September 2011 post called “How to spot a fraud”, a Wall Street Journal piece tells another story about returns that look too good to be true – but in this case, “too good” means “low volatility”. The point here is the ages-old trap of equating “risk” with “volatility” and assuming that a low-volatility fund is less risky. Even ignoring the possibility of fraud, it’s a bad move.

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Gustavo Ballvé on January 4th, 2012

We were initially skeptical because, as Buysiders.com readers are probably well aware by now, we view risk management as a matter of knowledge gathering/sharing and corporate culture. The excerpts inside this post explain our satisfaction with the video. It’s not enough for us to judge whether this course is a great investment for you or your company, but we have attended classes with Bob Kaplan (and other) at Harvard and we certainly got more than our money’s worth.

Read more about Risk management culture

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