• Investment Philosophy
  • Investment Process
  • Risk Management Framework

Risk Management Framework

Risk Management Process

1. Risk Management Principle

  1. 01. PROACTIVE Risk Management through proper level management of risk index
  2. 02. CONTINUOUS Risk Management through monitoring and reporting by the system
  3. 03. SELF-REGULATING Risk Management through robustness of business process and spread of company-wide risk management culture

2. Risk Universe

Risk Universe is comprised of three major types of risks, and each risk consists of several sub risks.

Risk Univers table
Risks on own account Business Risks
  • Market appreciation risk
  • Demand risk
  • New Business risk
  • Foreign exchange and interest risk
  • Own investment risks
  • Regulatory risk
  • Legal risk
  • Mis-selling risk
  • Business risks are inherent risks of an asset management company, arising from management of its proprietary account.
  • Business risks consist of the eight sub risks.
Operations Risks
  • Process/execution risk
  • Systems risk
  • External event risk
  • HR risk
  • Modeling risk
  • Valuation risk
  • Investment guideline risk
  • Operations risks are inherent risks of an asset management company, arising from management of its internal processes.
  • Operations risk consists of the seven sub risks.
Risks on client account Investment Risks
  • Performance risk
  • Market risk
  • Credit risk
  • Market liquidity risk
  • Investment risks arise in the client accounts.
  • Investment risk consists of the four sub risks.
1st Level-Team in charge
Each team in charge is primarily responsible for risk management and performs a control function on routine work through system.
2nd Level- Risk Mgt. team, Compliance, etc.
The 2nd level has a secondary responsibility for risk management and performs an independent control function on a routine work through system.
3rd Level- Audit Committee
The 3rd Level Performs an independent gontrol function periodically through internal audit.
  • Independent Control : The control performed by independent function from business teams (Investment teams, Sales teams, Marketing Strategy team, etc.)
  • Periodic & Exception-based Control : The periodic control function on an exceptional case
  • Systematic & Operational Control : The control performed by operational function through systems (AITAS, VISION, Excel-based calculation, etc.)
independent Control
2nd Level- Risk Mgt. team, Compliance, etc.
3rd Level- Audit Committee
Periodic & Exception-based Control
3rd Level- Audit Committee
Systematic & Operational Control
1st Level-Team in charge
2nd Level- Risk Mgt. team, Compliance, etc.

4. Risk Management Organization

Risk Management Team is in exclusive charge of risk management and is responsible for a secondary control function. It also cooperates with the risk management organization of AXA IM.
Risk management team consists of two parts, investment risk and operation risk.
Risk management team is in charge of the establishment and management of the Risk Management Framework and the performance measurement system, risk monitoring and reporting, the implementation and execution of RMCG’s decision and resolution, etc.
  • KYOBO AXA IM
    • CEO
    • Risk Management Consultation Group(Chairman : Deputy CEO&COO)
    • Risk Management Team
      • Investment Risk
      • Operation Risk
  • AXA IM
    • Global Head of Risk Management
      • Senior Expertise Risk Managers
        • Asian JV Senior Risk Manager& CRO AXA IM Asia
    • AXA Group-CRO

Risk Management Team and Asian JV Senior Risk Manager& CRO AXA IM Asia is Cooperation relation, Global Head of Risk Management and AXA Group-CRO is Cooperation relation

5. Structure of Policy and Standard related to risk management

There are five Policies, eight Standards, two Rules and two Plans with regard to the Risk Management, as well as the Internal Control Standards.

Internal Control Standards table
Internal Control Standards
Five Policies,
eight Standards, two Rules
and two Plans

with regard to
Risk Management
1. Risk Management Consultation Group Policy
2. Collective Investment Property Risk Management Policy
- Detailed Risk Management Rules for Derivatives Products
- Detailed Risk Management Rules for Short-Term Financial Collective Investment Vehicles
- Collective Investment Property Risk Limit Standards
- Risk Management Contingency Plan
- GIPS (Global Investment Performance Standards) Compliance Standards
- Benchmark Selection Standards
- Collective Investment Property Risk Grade Classification Standards
- Derivatives Product Risk Limit Management Standards
3. Hedge Fund Risk Management Policy
4. Proprietary Asset Risk Management Policy
5. Operational Risk Management Policy
- Business Continuity Plan (BCP)
- Incident Reporting Standards
- Business Process Management Standards
- EUC (End User Computing) Control Procedure Standards

6. Reporting and monitoring framework

Compliance

What’s the role of Compliance team at Kyobo AXA Investment Managers?

Kyobo AXA Investment Managers’ compliance team is to build and operate an independent monitoring system required by related regulations in order to insure sound asset management and to protect client’s interests. Our Compliance team checks and correct the actual conditions of employee’s law observance and provide consultation on law observance to board of directors and management.

Also, they consistently monitor the result of process and standardswhich was fixed to abide by regulations and due diligence related to asset management. We carry out periodic and frequent Compliance training program to raise compliance mind for the entire employees and try to block anysources of illegitimate activities through the examination of compliance checklist by teams, which enables them to follow internal control on their own.

Kyobo AXA Investment managers will dedicate the best efforts to become the asset management company which regards the clients’ interests as the top priority and is faithful to the basics through the establishment of foundation for its transparent management based on the thorough observance of regulations and compliance standards.

Organizational structure of Compliance

  1. 01. Strengthening of ability in Compliance as our firm’s promotion work for the management innovation
  2. 02. Strengthening of compliance role and function as independent organization
  3. 03. Leading company in the composition of compliance team and establishment of the compliance system since September, 1999

Compliance process associated with investment management

  • Proactive Supervision and concurrent process of the follow-up supervision
    Introduction of Feedback function by prior schematical check for the illegitimateproportion of the day and double-check on the lists of violation to report to the investment management team on the next day
  • Confirmation of the investment management standards : relevant law and terms, minimize legal risk
    Separation between investment management and trading (Separation of traders and fund manager), Management instruction principles (establishment of equal distribution standards), principle of selection of brokers (Best Execution Policy)
Process of Proactive Compliance

Proactive compliance : prior check on list of the violations involved in trading position through the simulation or virtual tradingbefore confirmation of managing instruction

Investment Management team
Primary supervision of law observance(field supervision)
  • Proactive compliance system is to search for any violations of rules and to display the current status violation of rules by teams/fund managers
  • Enabled immediate notification of whether the additional position has exceeded the limit with a  projected box when trading as well as checking the excess limit through the simulation monitor
Compliance team
Secondary follow-up supervision process
  • Request of approval to compliance on the basis of the certification when advanced approval is required
  • Process enabled only after approved by compliance

Observance of internal control standards and prevention of Moral Hazard

Reinforce ethics and control unfair trading by establishing internal control stradardson the basis of Capital Market and Financial Investment Services Act

Terms of obedience for internal control standards
The Insider Trading Prohibitions and duty of the prohibition of concurrent offices
Prohibition on unfair trading and duty of the law observance, prohibition on illegal/unlawful activities
Preserve the confidentiality of information (Chinese Wall, Provide on the principle of necessity)
Advanced approval required before contacting external institutions or media and restrictions on Soft Dollar from brokerage companies
Restrictions on dealing with affiliated companies and entire lists of items for due diligence
Compliance Process of follow-up supervision

Follow-up supervision : after managing completed, search if there was any violation occurred as a final step when inputting the investment instruction or when calculating the price

Investment Management team
Primary follow-up supervision process
  • A user can examine the primary act of violations on a daily basis by using compliance system and take action(clear violation) within 1 day
  • Write the statement about the incident and weekly lists
Compliance team
Secondary follow-up supervision process
  • Request for correction regarding the breach of the law on a daily basis
  • When the violation is not corrected on time, take appropriate measures considering severity on the matter
  • By using compliance management of violation rules, compliance enforces supervision of violation
Compliance reporting process
Compliance reporting process table
Lists Contents of reporting
Daily writing from compliance team to notify investment management team daily, frequently report to CEO on the acts of violation
Weekly writing from compliance team to notify investment management team weekly and receive the statement of incidetns
Monthly Accumulate weekly writing from compliance monthly to report CEO
Compliance training Regular training : according to the annual training schedule, carry out 10 credit completion course for entire employees (supervisory institutions or guest lectures from external personnel)