Global Operating Review

Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

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Risk Management

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 and risk aware decision making is embedded into our key processes. The Board sets the risk appetite and this guides management to proactively identify, monitor and manage the material and emerging risks that could impact our organisation.

Our approach to risk management

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 regularly reviews and approves the design of the risk management framework and sets the risk appetite. This process incorporates a review of key aspects of the strategy and assesses whether adjustments to the material risks, risk appetite and related tolerances (i.e. limits and capacity) need to be made as the Group’s operating environment and strategy evolves.

During FY20 in addition to embedding the enhanced risk framework, the key area of focus related to managing the risks associated with the unprecedented COVID-19 pandemic. Separate COVID-19 risk registers were developed and this is a ‘live’ process with the key COVID-19 risks being identified, monitored and managed. Areas of specific focus include staff wellbeing, culture, effective remote working, continued excellent client service, enhanced liquidity risk management, day-to-day management of portfolios, enhanced communication and maintaining operational resilience. COVID-19 was also part of the strategy update discussions with future threats and opportunities for the Group being key areas of consideration.

The Board delegates responsibility for implementing the risk management framework and managing the material risks within the appetite set to the Group Chief Executive Officer.

The Group Chief Risk Officer is responsible for designing the Group risk framework and working with the local risk teams to support and challenge the identification, assessment, monitoring and reporting of risk exposures and their associated mitigants.

Managing risk to deliver our strategy

The Board endorsed an updated risk framework during 2019 and this was implemented across the Group in 2020. When setting the risk appetite statement and updating annually, 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, and the risks associated with managing the COVID-19 pandemic, as 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 nonfinancial 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 in the following table.

Risk alignment to relevant strategic priorities

Investment Capabilities



Operating Platform

Material risk
Risk description
Risk management
Strategic and business
Material risk

COVID-19 Pandemic

Risk description

The risk that the Group is unable to continue servicing clients and manage the health, safety and wellbeing of employees.

The risk that the Group fails to effectively consider the future threats and opportunities resulting from the COVID-19 pandemic.

Both risks can impact on the ability of the Group to continue operating and deliver the strategy.

Risk management
  • Business Continuity Plans (BCPs) plans re-tested and crisis management teams in place
  • Successful and timely transition to ‘Working from Home’ in all jurisdictions. Technology and home equipment enhanced to support remote working, including cyber risk management
  • Client service and portfolio management processes continued and enhancements made where appropriate, e.g. proactive and more frequent client communications and enhanced liquidity risk management
  • Enhanced risk management processes with specific COVID-19 risk registers in place
  • Additional oversight to ensure material suppliers and third party providers continue to deliver on the agreed service levels
  • Staff wellbeing seminars and increased leadership focus on communication and employee welfare, with regular staff surveys and feedback mechanisms in place
  • Updated the Group strategy taking COVID-19 threats and opportunities into consideration
Material risk

Strategic 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 risks 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 opportunities. This includes external factors such as the markets, geo-political events and competition.

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 the Irish Management Company established, to allow the continued distribution of relevant products across Europe
  • Global project underway to further develop the Group’s Responsible Investment business under the ‘Regnan’ brand in a disciplined and controlled manner. New Regnan branded products will continue to be launched and a highly regarded Impact investing team has joined the Group, with their product being launched early in FY21
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 the 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.

The risk that our investors seek other investment products if we are unable to meet investment objectives.

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 resources (including human capital), ineffective execution, and poor management of project interdependencies.

Pendal Australia is 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
  • Appropriate governance processes in place to monitor, escalate and report on progress to the relevant Committees and Boards
  • Internal audit providing independent oversight over major change projects
  • Strategic skill sets for project teams tasked with transformational projects
  • During FY20 a key transformation program focusing on global data commenced, this includes how we buy data related technology; use data to improve the client experience and our overall performance; and how we continue to protect data in line with regulation and legislation
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 client investment objectives or that there is a failure to achieve consistent long-term performance that delivers on their expectations.

Risk management
  • Talent hiring and succession planning
  • Clearly defined investment strategies and investment processes within stated risk parameters
  • Regular investment risk 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 governance 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
  • During FY20, several new products were launched to meet client demands and the inaugural ‘Value for Money’ report was published for the in-scope JOHCM funds
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 have been negatively impacted in the UK and Europe primarily by external factors, including Brexit and COVID-19. FY20 Q4 has seen early signs of improvement and a return to positive net inflows. In Australia, the Banking Royal Commission has had a significant impact on the industry, and outflows from historically significant client Westpac have continued as they execute their exit from wealth management.

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
  • Fee structures benchmarked and updated where required
  • Regular Board reporting and discussions on market trends and changes in FUM
  • Operational restructure and recruitment to expand distribution capability has largely been completed in Australia and is underway in the UK/Europe and US
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 UK’s FCA Asset Management Market 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.

There is also an increased focus on Responsible Investing, including areas such as climate risk. The implementation of the European Stewardship Code and other global regulatory initiatives should help to improve transparency and consistency in the ESG space.

Risk management
  • Clearly defined compliance framework to meet compliance obligations
  • Establishing 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
  • Projects underway to improve processes and systems such as substantial shareholder reporting
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
  • Global data management project is underway to enhance processes and systems. Recruitment of dedicated data specialists is largely completed
  • 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 penetration testing and 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 two years, the Group’s operations will be exposed to heightened supplier risks as the business seeks to transition and introduce new infrastructure suppliers, for example, back office 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
  • Major project underway, following a disciplined change methodology, to transition to new back/front office supplier/s
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 that of clients when establishing new financial products and building them to scale. This exposes the Group to the same potential loss of capital as clients. COVID-19 related market falls has seen this risk increase and this is reflected in significant mark-to-market losses on the seed portfolio over the year.

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 and the use of debt – currently no borrowings
  • 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, including COVID-19 considerations