Risk Management, Securities Investment Fund Company

In the high-risk securities sector, the losses and bankruptcies caused by improper security investments occur one after another in recent years. Notwithstanding that new funds (funds issued after 1998 in relation to old funds) have not yet experienced liquidation in China, net value of many funds falls below RMB1.00 in 2002. These facts have aroused the awareness that risk management is not only a requirement raised by securities regulatory authority for fund entities but also a prerequisite condition for fund entities to survive.This essay tries to expound the risk management in fund entities from the aspects of system and technique, leading to the conclusion that fund entities should determine the benchmark of motivation based on the investment performance with risk considerations and preferably take equity share options (ESO) or restricted share as the motivators. In addition, this essay gives detailed descriptions on VAR, a prevailing practice in the international market recently, and its related scenario analysis, pressure test and other techniques. At the end, this essay makes a general approach to some problems encountered by fund entities in risk management and suggests a basic way of risk management for fund entities in China, i.e. all risk management.