Risk management

The Pendal Group is a pure investment manager which uses its global active investment expertise to effectively manage risk and generate wealth for its clients. Our goal is to provide a diversified range of investment products that meet, or exceed, our clients’ expectations. The key to our success is delivering superior investment performance whilst earning, and retaining, the trust of our clients over the long term and over multiple market cycles. Our products are clear in their investment goals and transparent in their fees. Our culture encourages individuals to act with integrity and honesty and to value the interests of our clients as the first priority.

Overall accountability for risk management lies with the Pendal Group Board. The Group Audit & Risk Committee assists the Board in its oversight of risk management, financial and assurance matters. The Board annually review and approve the design of the risk management framework and set the risk appetite. This annual process incorporates a review of key aspects of the strategy and assesses whether adjustments to the risk appetite and related tolerances (ie limits and capacity) need to be made as the Company’s strategy evolves.

The Board delegates responsibility for implementing the risk management framework and managing the material risks within the appetite set, to the Group CEO and the Global Executive Committee.

The Global Executive Committee has accountability and responsibility to:

  • manage the Group in a sustainable way;
  • promote ongoing long-term investment performance for clients;
  • enhance and maintain the Group’s reputation;
  • ensure compliance with legal and regulatory obligations and industry standards; and
  • deliver the Group’s objectives within the set risk appetite.

The Group Chief Risk Officer is responsible for coordinating the identification, assessment, monitoring and reporting of risk exposures and their associated mitigants throughout the Group.

Managing risk to deliver our strategy

Our risk management framework continues to provide a strong foundation from which we can successfully deliver our strategic priorities. The Group has a culture of effective risk management by proactively identifying all material risks that may affect the organisation and ensuring that these are appropriately monitored and managed.

Following the appointment of a new Group Chief Risk Officer during the year, the Group’s risk management framework was reviewed and, as a result, the Board endorsed a number of proposed updates for which implementation has commenced. This exercise included a full in-depth review of the material risks, associated risk appetite and risk reporting.

When setting the risk appetite statement the Board acknowledges and recognises that in the normal course of business the Group is exposed to risk and that it is willing to accept a certain level of risk in managing the business to deliver its strategic objectives. As part of this exercise the Board also considers the key risk indicators and risk limits it is willing to accept in relation to each material risk. Management are then held to account for managing the material risks within the risk appetite set, thus enabling the Group to make risk conscious decisions and generate appropriate returns, in a controlled and deliberate manner.

The Board has a lower risk appetite in the management of critical areas such as investment performance, regulation and legislation, behaviour and conduct, all of these could have a significant impact on the Group’s reputation and performance. The Group accepts a higher risk appetite, consistent with its strategic objectives, in relation to risks associated with business growth and change initiatives, including investing shareholder funds in the form of seed capital to support future growth.

Material risks

The Group actively manages a range of financial and non-financial business risks and uncertainties which can potentially have a material impact on the Group and its ability to achieve its stated objectives. While every effort is made to identify and manage material risks and emerging risks, additional risks not currently known or detailed below may also adversely affect future performance. The Board has identified the Group’s material risks as outlined below.

Risk alignment to relevant strategic priorities

Investment capability



Operating platform

Material Risk
Risk Description
Risk Management
Strategic and business
Material Risk

Strategy alignment and execution

Risk Description

The risk that the Group’s strategy is not aligned to maximise shareholder and client value or we fail to effectively execute the Group’s strategy.

Both of which can impact on the ability of the Group to deliver on expected outcomes.

Risk Management
  • Annual strategy and budget process, with outcomes and priorities approved by the Board.
  • Regular monitoring of strategic execution and strong reporting mechanisms, to support effective Board oversight.
  • Clearly articulated objectives and governance structure.
  • Employee performance management process and remuneration aligned to delivery of strategic objectives.
  • Robust search and due diligence for acquisitions, engaging subject matter experts and external consultants.
Material Risk

Business model

Risk Description

The risk that the business model does not respond effectively to external change which could result in loss or missed opportunity. This includes external factors such as the markets, geopolitical events and competition.

During the 2019 Financial Year, an example of this type of risk includes the potential impacts on the Group business model resulting from Brexit, specifically the ability to continue distributing our products in Europe.

Risk Management
  • Annual strategy and budget process.
  • Strategy and Risk management processes to continuously monitor and manage external threats and opportunities.
  • Clearly articulated governance processes to enable effective decision making.
  • Variable remuneration aligned to strategic objectives.
  • Brexit Steering Committee in place and Irish Management Company established, with appropriate regulatory permissions, to allow the continued distribution of relevant products across Europe, post Brexit.
Material Risk


Risk Description

The Group’s performance is largely dependent on its ability to attract and retain talent. Loss of key personnel could adversely affect financial performance and business growth.

There is also risk of concentration whereby a material proportion of the Group’s revenue is delivered via a few strategies and therefore creates reliance on a few key investment personnel.

Risk Management
  • Competitive remuneration structures in the relevant employment markets to attract, motivate and retain talent, with alignment to client and shareholder outcomes.
  • Long-term retention plans.
  • Succession planning to develop or attract talent for sustainable growth.
  • Maintenance of a strong reputation and culture which promotes an attractive workplace.
  • Employee engagement surveys to support retention.
  • Performance management processes to help develop and grow talent.
  • Board review proposals for new team acquisitions to ensure areas such as cultural fit, product offering and financials are robustly considered.
Material Risk

Behaviour and conduct

Risk Description

The risk of inappropriate, unethical or unlawful behaviour, by employees, which is not in line with the Group’s core values.

This includes the risk of senior management failing to set an appropriate cultural ‘tone from the top’, which may result in the delivery of detrimental or suboptimal outcomes for clients and shareholders.

Risk Management
  • Comprehensive recruitment and performance management processes to assess behaviour and conduct.
  • Clearly defined Code of Conduct which outlines the expected behaviour of all individuals.
  • Whistleblowing Framework in place.
  • Embedded Risk Management Framework, which incorporates conduct risk management.
  • Ongoing HR, Risk and Compliance training and confidential staff engagement surveys.
  • Internal audit program incorporating conduct assessment.
Material Risk

Transformation (change management)

Risk Description

Failure to effectively manage material change projects which could result in loss or missed opportunities. Such a risk could result from poor planning, ineffective project governance, insufficient resource (including human capital), ineffective execution and poor management of project interdependencies.

Pendal Australia will be undergoing a major transformational change program as it enhances its operational infrastructure and therefore there are heightened risks which are being carefully managed.

Risk Management
  • Annual strategy and budget process, with transformation change priorities approved by the Board.
  • Dedicated change management team and effective approach and processes in place.
  • Risk management embedded within the change management process.
  • Regular reporting and monitoring of process and key areas reported to various governance committees and Boards.
  • Internal audit providing independent oversight over Australian major change projects.
  • Strategic skill-sets for project teams tasked with transformational projects.
  • Appropriate governance processes in place to escalate and report on progress.
Product and performance
Material Risk

Product and investment performance

Risk Description

The risk that the Group’s products and solutions do not meet client preferences. This includes changing client needs, fee structures, and asset classes.

The risk that portfolios will not meet their investment objectives or that there is a failure to achieve consistent long-term performance that delivers on the clients’ expectations.

The management of investment risk and expanding into products that meet client preferences, such as ESG, are a core skill of the Group.

Risk Management
  • Talent hiring and succession planning.
  • Clearly defined investment strategies and investment processes within stated risk parameters.
  • Regular investment performance reviews and analysis of portfolio risks across all asset classes and strategies (including market, liquidity and credit counterparty).
  • Investment monitoring performed independently of our portfolio managers.
  • Regular client reporting and performance update calls.
  • Formal approach to product development and innovation including management of the product lifecycle (design, approval, launch, post implementation review, ongoing monitoring and support).
  • Ongoing external insights into how client preferences are changing.
Material Risk


Risk Description

The risk that the design and execution of the distribution strategy is ineffective, resulting in a failure to positively identify, engage and support clients. Which in turn results in a failure to deliver budgeted fund flows.

Funds’ flows continue to be negatively impacted by external factors such as Brexit resulting in outflows in our European strategies. In Australia regulatory reforms such as the Banking Royal Commission review are impacting the industry, specifically for Pendal, we continue to see outflows from Westpac.

Risk Management
  • Client engagement and distribution is a key part of the overall strategy that is approved and monitored by the Board.
  • Ongoing external insights into how client preferences and market requirements are developing.
  • Fees structures benchmarked and updated where required.
  • Regular Board reporting and discussions on market trends and changes in FUM.
  • Ongoing external insights into how client preferences are changing.
  • Recruitment to expand Distribution capability.
Material Risk

Regulation and legislation

Risk Description

There is a risk that the Group will not be able to respond effectively to regulatory change or comply with relevant laws and regulations in multiple jurisdictions. Failure to effectively manage these risks could result in sanctions, fines, and reputational damage.

The volume of regulatory and legislative change remains challenging. Examples of this include the developments coming from the FCA’s Asset Management Study and the Senior Managers and Certification Regime, US enhancements to liquidity management rules, and the enhanced whistleblowing and modern slavery requirements in Australia. As a result the cost of compliance remains high.

Risk Management
  • Clearly defined compliance framework to meet compliance obligations.
  • Established policies and procedures supporting the risk and compliance framework.
  • Experienced and appropriate level of legal, risk, tax and compliance resources to manage obligations.
  • Regular and constructive engagement with regulators including participation in industry bodies.
  • Ongoing monitoring, reporting and review of regulatory obligations, including new and proposed legislation.
  • External advisors used where necessary to complement in-house knowledge.
  • Independent non-executive directors appointed to subsidiary UK regulated entities.
  • Tax management framework to identify, manage and communicate key tax risks.
Material Risk

Technology and data (including cyber)

Risk Description

The risk that the Group does not optimise the use of its data and develop appropriate technological solutions. This may negatively impact the Group’s ability to deliver growth.

Coupled with the risk that the existing technology operating platform is inadequate and may suffer disruptions such as, system failures, faults, illegal unauthorised use of data and cybercrime.

Data management and digital transformation will continue to be key areas of future focus.

Risk Management
  • Recruitment of dedicated data specialists.
  • Participation in external forums and hosting industry insights tech advisory board meetings.
  • Independent review of the design and effectiveness of technological and data internal controls.
  • Annual review and testing of Disaster Recovery and Business Continuity Plans.
  • Regular information security training.
  • Ongoing consultation with cyber security specialists.
Material Risk

Supplier management (including outsourcing)

Risk Description

The risk of loss or reputation damage arising from inadequate supplier selection and oversight processes.

The Group has a number of key outsource providers, particularly with respect to fund administration and custody services. Over the next three years the Group’s operations will be exposed to heightened supplier risks as the business seeks to transition its back-office service providers.

Risk Management
  • Strategy process incorporates clarity on what areas we want to use third party suppliers.
  • Supplier management due diligence process.
  • Clearly defined governance framework, policies and procedures.
  • Regular monitoring and review of service level agreements and performance standards.
  • Independent annual audit of the design and effectiveness of internal controls.
  • Ongoing monitoring and reporting.
  • Regular communication/meetings with key outsource providers.
Material Risk

Market financial and treasury

Risk Description

The Group’s fee income is derived from the assets managed on behalf of clients and the associated fee rates.

The assets under management face a variety of risks arising from the unpredictability of financial markets, including movements in equity markets, interest rates and foreign exchange rates.

The Group also invests its own capital alongside clients when establishing new financial products and building them to scale. This exposes the Group to the same potential loss of capital as clients.

There is also the risk of the failure of the Group to maintain appropriate working capital and reserves to respond to unexpected adverse events.

Risk Management
  • Diversification across asset classes, investment styles and geographies.
  • Budgeting and financial forecast management.
  • Ongoing monitoring and review of strategy.
  • Conservative approach to leverage.
  • Monthly offshore earnings hedged into Australian dollars.
  • Capital policy in place with limits, including a seed capital policy.
  • Ongoing monitoring and annual board review of seed capital portfolio performance.
  • Capital requirements regularly monitored and stress testing carried out.
  • Conservative approach to the use of debt.