Treasury & Asset Management
Risks and Uncertainties
The key risks and uncertainties managed by Treasury include the risk that the Group does not have sufficient liquidity to meet its obligations as they fall due, has insufficient funding and/or capital to finance business growth, and has insufficient capital resources to meet the regulatory minimum or to support its credit ratings. The management of the funding and liquidity is delegated to Treasury and our approach to mitigate this risk is explained on pages 95 to 98.
Other risks and uncertainties faced by Treasury include less liquid and/or more volatile financial markets leading to losses from trading activities or permanent impairments to our investment securities. Less liquid financial markets could also affect the reliability of model valuations of certain asset backed securities. We review our valuation models regularly and adjust the assumptions to take account of evolving market conditions. These factors could lead to increased funding costs and increased volatility of earnings and equity.
In our Asset Management businesses, the key risks and uncertainties include the performance of investment markets, investment performance deteriorating below benchmark and the retention of key colleagues.
The volatility in the financial markets in which our Asset Management businesses operate, along with the general sales environment, could impact on growth prospects and profitability. To mitigate against a sector specific downturn materially affecting the business, we are actively diversifying our product range and expanding our market reach further in Europe. In Insight, the focus on Liability Driven Investing (‘LDI’) and Absolute Return strategies, helps further mitigate against difficult market conditions.
The loss of key colleagues could result in a deterioration in investment performance or lower volumes of new business. To mitigate this risk, we base our investment strategy on principles and processes rather than hiring ‘star’ fund managers. Furthermore, we have retention strategies in place for key employees through our Long Term Incentive Plan.