You want me to take charge of half a trillion dollars of internally managed assets? Invest them on a direct basis with a team of just over 300 public sector professionals – most of which are back and middle office? My biggest priority? Not screwing up. Not delegitimizing the entire organization and its mission. My second priority would be to make some solid returns for you, but my first priority would definitely be to not lose you a bunch of money due to stupid errors. I think that’s a sensible approach.
And, apparently, so does Norway’s SWF, which has has an entire policy focused on the prevention and management of “Unwanted Events”. Here’s an interesting blurb from the annual report.
“NBIM works systematically to identify unwanted events and improve processes to prevent such incidents. Reporting and following up on these incidents is an important part of efforts to improve operations and internal controls. We use cost-benefit analyses in our work to reduce risk levels...
Norges Bank’s Executive Board sets limits for operational risk management and internal controls at NBIM. The board has decided that there should be less than 20 percent probability that operational risk factors will result in gains and losses totalling 500 million kroner or more over...
Our internal control system is designed to minimise risks and provide reasonable assurance against material errors or losses. Internal controls are put in place based on an ongoing risk assessment and their effectiveness is reviewed at least once a year....
NBIM registered 216 unwanted events in 2011, down from 320 in 2010. Most of these had no financial consquences, either because they were discovered early enough or because they only had potential reputational consequences. The estimated total financial impact of these incidents was 13.5 million kroner, breaking down into losses of 13.45 million kroner and gains of 50,000 kroner. “
I give all credit to NBIM for reporting these issues; no organization is infallible and a fund worth more than $600 billion has to be ready to manage some “unwanted events”. Interesting stuff.
