PALM DESERT, CALIF.—“The past 60, 90 days have been the craziest that risk managers have ever faced in their careers, in terms of the national debate over the U.S. debt ceiling, market volatility and a host of other key risks asset managers are now facing,” said Joseph A. Carrier, chief risk officer at Legg Mason.

Which is helping put risk management and the work of chief risk officers at the forefront of fund management.

Carrier made his remarks at the Investment Company Institute’s Tax and Accounting Conference here last week, at a panel that he moderated on risk management.

The short list of the most critical risks on Carrier’s and other risk officers’ minds today include: 

  • The operational and valuation impact of extreme market volatility
  • Liquidity of all types of funds, particularly in light of the European debt crisis
  • Money market funds’ exposure to low-yielding instruments
  • The underperformance of more than half of the equity funds in the marketplace
  • Complex new products, such as funds that invest in derivatives or credit default swaps, and the resulting pressures on back office processing
  • Conflicting economic outlooks of various asset management firms, and for boutique managers-of-managers, conflicting opinions of affiliates
  • A strain on overall industry economics, with assets under management down across the board
  • The potential assumption of too much risk or movement into ill-advised instruments as a result of the decline in AUM
  • A heightened regulatory environment
  • Cybercrimes and hacking into investors’ accounts
  • Staffing cutbacks and the resulting strain on remaining human capital
  • “The marketplace has changed. Risk management is now front and center as a top priority for asset managers,” said Kristina Davis, a partner with Deloitte & Touche. “Chief risk officers, chief compliance officers and other key executives now have an active dialogue with management on risk infrastructure and technology. There is also an increasing focus to make sure that risk management is tied to a firm’s structure, and management is even considering what could go wrong with their strategy.”

-- This article first appeared on Money Management Executive.