Results of a new survey from executive search firm, Risk Talent Associates, provide good news for financial rocket scientists everywhere. Total compensation for chief risk officers in 2005 rose by eighteen percent to nearly $800,000 on average, with hedge funds and funds of funds paying larger bonuses to draw "top risk managers away from traditional investment banks". Not to be outdone, president Michael Woodrow warns that alternative investment managers will soon be competing with "capital markets' firms" and asset managers who acknowledge the importance of analytics and risk management knowledge and experience.
On the pension risk front, I recently wrote about the difficulty of getting good people at the same time that talent is required to navigate some rather choppy investment waters. (See "Pension Fund Hiring - Start of a New Trend?")
I have long held the view that effective investment management is not possible in the absence of what I refer to as the "risk troika" - identification, measurement and management.
Are higher salaries for risk professionals a reflection of their importance to an organization's financial well-being? As I wrote a few years ago, risk professionals should be both knowledgeable and experienced about a wide variety of topics - market mechanisms, statistics, systems and data quality, internal controls, deal structure, to name a few. Moreover, they need to be able to (a) describe the relationship between various risk drivers and portfolio loss potential in plain language (b) work well with a cadre of people in diverse functional areas and (c) say no to new ideas that may induce unwarranted risk under certain market scenarios.
Not too many people can fill those shoes!