SURAHMIN BUSINESS

Risk management deals with the identification of risks, understanding their level of assessment and also prioritizing them so that they can be handled in the right manner. Strategies used to manage include transferring risks to third parties so that they take on the burden of handling them and also accepting a part of the risk consequences to mitigate the and take step to provide a solution to it.

Various standards have been set for risk management and these include standards set by the Project Management Institute and the National Institute of Science and Technology as well as ISO Standards. The core activities in risk management are as follows:

• Identifying risks and assessing them to find out their impact
• Identifying ways to reduce it and prioritizing risks based on the strategy that must be taken to minimize them
• Assessing the vulnerability of assets to threats

There are many ways in which it can be minimized. These include the design of new business process that has the right containment measure in pace to control it. Another way is to transfer risk to a third party which is capable of handling it. Assess the level of problems caused by risks in on-going activities and check how much of a threat they pose to the organization. Some of them are accepted as part of normal functioning, while others need to be kept in check so that they do not escalate the problem.

There are various activities involved in management and it is one of the most crucial elements that an organization has to check out. These include planning how risk is to be managed for a particular project, creating risk reporting channel, preparing mitigation plans so that these are reduced and assigning an officer to handle the risks so that they do not escalate.

Using a list of family offices as a tool to raise capital is a smart idea, by doing so you can contact more professionals per hour and develop more investor relationships than otherwise possible.

Our team has completed the research and done the math and unless you are making less than $3 an hour then typically using a directory of contact details of HNW or UHNW wealth management firms can save you a lot of time and money.

You could do all of the research yourself and not use a list prepared by someone else but that would be as they say, “penny wise, pound foolish” as you are basically doing administrative work while searching on Google for leads and contact details instead of making phone calls and having in-person meetings. Developing relationships is all about working efficiently and leveraging the limited time you have available to make your firm or fund stand out from your competitors. If you invest the time to really communicate your Unique Selling Proposition (USP) in the right context you can stay ahead of your competitors.

To leverage the power of a FO directory most try to meet face-to-face as often as possible, respect everyone’s time, always send out personalized one-to-one messages via email and never spam, target firms you can easily meet with often, make sure you get a high quality resource in the first place that was built by a team of family office professionals, make sure the list has be en updated within the past 6 months, and follow up with packages in the mail to increase the impact of your marketing.

There are not very many family offices database options for fund managers but luckily there are some exist that are very well put together and constantly updated. The trick is figuring out which option is going to work best for your fund marketing or capital raising objectives.

First before you start down this path figure out if you should be working with a single FO, MFOs or both.

Single FOs are those which are built around serving the needs for one single ultra high net worth individual or family who typically has a total net worth of over $50M and in most cases over $100M.

Multi-family offices are those which provide services to 3, 4, 5, or dozens of wealth individuals and families providing holistic wealth management and tax efficiency advisory and management.

If you are using the database for capital raising you will want to approach both of these groups but the reality is that you will end up connecting with and being able to develop more powerful relationships with the muftis. This is because there are more of them, they are less secretive, and in my experience they invest in external fund managers more often.

Some final tips in selecting a database is to look for one in Excel spreadsheet format, that costs less than $2,000, only costs $500 a year or less to keep updates over the years, and is offered by a team that is really focused on this industry and not just pumping out software driven script built databases scrapped from the internet.

The COSO defines Internal Control as “a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efficiency of operations; reliability of financial reporting; and compliance with applicable laws and regulations.” It further defines Control Environment as – “The control environment is an organization’s culture, beliefs, and values. It includes the integrity, ethical beliefs, and competencies of its people, which are visible in management’s operating style, how management assigns authority and responsibility, and how management organizes and develops its employees. Another indication of the control environment is the degree of involvement from its board or directors.”

In other words, Organization Culture is the sum total of the psychology and attitudes which are communicated by the leadership team to the employees and the ethics, values and beliefs which are incorporated for execution of work and obtaining business objectives. Now that connections between internal controls, control environment and organization culture are clear; the next question is what the impact of organization culture on internal controls is?

Let us understand the constituents of organization culture and drive the impact on internal controls.

Leadership: Organization culture is defined by the leadership of the organization. The CEO is the torch-bearer of culture. The mission, vision and strategy communicated by the senior management are the glue which holds the organization together and moves everybody in the same direction. Lack of clear direction, frequent and abrupt changes and arbitrary decisions in mission, vision and strategy contribute to the negativity in the culture. This also results in various departments having different work cultures and working in a counter-productive manner. This directly impacts the efficiency and effectiveness of business operations. Depending on the level and clarity of leadership communication, the organization at a macro level may be in high, medium or low risk.

Ethics: Business ethics show in all aspects of business conduct, from the board room strategies to the front desk personnel. It goes beyond legal requirements, and shows whether business is conducted on values of integrity, honesty and fairness. It shows whether employees at all levels are able to walk the talk. A clearly defined and implemented code of conduct improves the culture. However, an organization which has not implemented a code of conduct may have a negative organization culture. In such a case, decisions are taken arbitrarily; organization lacks transparency and may disregard laws and regulations to achieve profitability. Commitment to follow the business ethics, reflect whether organization has high, medium or low compliance risk. High compliance risk raises questions on reliability and authenticity of financial statements.

Securities Lending is the act of large financial institutions with long positions in securities ‘lending’ out those positions to prime brokers to further lend to hedge funds and investors that want to short the particular security. The process creates incremental revenues for many of these large financial institutions; most commonly mutual funds, pension funds, insurance companies and offshore investment funds that have massive amounts of capital within their portfolios.

The size of the market is estimated to be a staggering $717 billion for US equities. One of the crucial points to note is the lack of a widespread functional exchange in which to transact security lending agreements. Security lending transactions still occur almost exclusively over the phone. It is one of the few transactions in today’s market that agreements are only reached by a prime broker picking up the phone, calling an asset manager and looking to set the terms of agreement.

Equity positions are lent out to brokers, hedge funds and proprietary trading desks with 102% – 105% collateral provided to the lending firm, giving these firms even more cash to invest in other securities; most commonly short-term money market investment vehicles. However, during the brunt of the crisis news surfaced that some institutions were in fact putting the capital in much higher risk securities such as mortgage-backed investments. This remains a potential risk to investors who have bought shares of mutual funds or ETFs (Exchange Traded Funds). If the ‘lent out’ capital is reinvested in risky assets and losses on those positions occur, this loss of investment on the collateralized securities carries through to the total performance of the fund.

What determines the fees and revenue generated by the lending firm? It is a combination of factors including: length of the loan, size of the loan, availability of the security in the open market, and stock-specific measures such as dividend amount on the underlying security. Estimates on how lucrative the business is pegs lenders such as mutual funds and pension funds making anywhere from 1 to 2 percent per annum on the loaning out of positions, while prime brokers are making between 3.5% and 7.25% over the same period.

Each transaction depends on the stock but can bring as little as 0.01% per transaction or as much as 0.40%. Securities in extremely high demand can fetch all the way into the double digit percentage points, as seen by Citigroup in 2009 when hedge funds anted up to pay as much as 13% for getting a lot of the shares to sell short.