Initially GIPS were born out of the frustration of pension fund trustee’s inability to differentiate between good and bad asset managers in the mid 1980s. Without standards it appeared that all managers were above average performers. Marketing departments of asset managers would “cherry pick” good performing accounts, choose beneficial time periods, hide important caveats in the small print and self-select return and valuation methodologies to ensure good but non-representative performance.

What is Liquidity Risk? We can provide at least two definitions for it.

Funding Liquidity Risk. This definition refers to the Asset Liability Management (ALM) of an institution – normally a bank – identifying the gaps in the funding of the institution’s assets. E.g. in a bank there is usually a funding gap as the liabilities contain short-term deposits in large part against assets that invest in longer term horizons. Funding gaps generate a funding risk, the risk of rolling the short term funding at growing costs or even the risk of not being able to roll/over the shorter term liabilities.

After 20 years of investment in straightthrough processing (STP), what industry problems still need to be solved, and how do they fit into today’s operational risk framework?

The increased volatility of capital markets, the significant growth of derivatives and the occurrence of several incidents (subprime crisis, Madoff and Kerviel affairs) motivated professionals in asset management to focus on risk measurement, in order to meet the seminal challenge of the asset manager - investor relationship.

With the passing of the global financial crisis of 2008-09, many things have changed for global finance and for the asset management industry in particular. As we now know all too well, major financial shocks can no longer be contained. They spread with amazing speed, both geographically and across asset classes and financial intermediaries. Financial interconnectedness can bring great benefits, but it also generates large systemic risks, and there are few places to seek refuge from its consequences.