What we do

Benefits - Capital optimisation

Risk-based capital management

Put simply, excess capital leads to a loss of shareholder value. In a bank, for example, a 0.5% or 1.0% reduction in required regulatory capital to maintain target debt ratings can have an enormous impact on the bottom line. Likewise for coprorates, funds held in reserve for loss events are those that could be elsewhere employed in delivering strategies.

The capital optimising benefits of implementing risk-based capital management include:

  • A move away from a traditional cursory view of capital by recognising a strong link between an alignment of capital management and risk functions;
  • Economic profit approaches, optimising yield from scarce or additional resources;
  • Discontinuing underperforming product or business lines using more rigorous controls or measures;
  • Optimising pricing by turning away from price competition or product commoditisation;
  • Recovering the cost of capital, leading to more effective allocation and targeting of ‘best’ customers and products;
  • Deployment of a more liberated capital allocation approach that fully harnesses the benefits of diversification;
  • Incentivising and empowering business units to take ownership of economic capital allocation, and mitigating risks associated with ‘black boxes’ for risk measurement;
  • More favourable market perceptions from rating agencies, bond holders, regulators and investors.

Optimisation and Active Portfolio Management

Consideration of risk measures and risk capital is essential to support asset portfolio management activities. Active Portfolio Management enables organisations to improve the level of diversification of portfolio, reduces concentration risk and mitigates/transfers the risk to a secondary market.

The capital optimising benefits of Active Portfolio Management include:

  • Maximising yield from scarce or additional resources or capital, leading to more informed decisions on valuing, monitoring and transferring portfolios;
  • Practical management of risks, freeing up capacity at group level to allow for investment in new opportunities;
  • Group-wide consistency in risk pricing and risk/return reporting to management;
  • Better management of volatility through investment in less risky, high-quality companies rather than in the market as a whole, even at the cost of slightly lower returns (or, conversely, the chance of higher-than-market returns by taking on additional risk);
  • Competing more effectively in the marketplace through the development of strategies to off-load deals that destroy shareholder value.