On Sebi diktat, mutual funds step up hunt for risk professionals

A regulatory diktat has triggered a rush for risk professionals among asset managers, bringing what is essentially a low-key, back-office profile into the spotlight.

In a circular issued in September last year, the Securities and Exchange Board of India (Sebi) had asked asset management companies (AMCs) to appoint dedicated risk officers for managing investment, compliance, operational, and cyber risks, along with a chief risk officer (CRO) by April 1, 2022.

More than a third of the 44 AMCs did not have a CRO until last year and the mandate has turbocharged a search for talent — with banks, NBFCs, insurance companies, and consultancy firms emerging as the favourite hunting ground. Even AMCs that had a head of risk have gone to the market to scout for senior professionals with better experience and pedigree. AMCs have added an estimated 100-150 risk officers in the past six months, according to people in the know, and the numbers are expected to swell in the coming months.

“It is not easy to meet the regulatory requirements, especially if you want to set everything up overnight. Smaller AMCs, in particular, may find the diktat difficult to implement and have to bear a huge operating cost,” said a senior official of a large bank-sponsored fund house, which now has over 20 people in its risk team and is in the process of rejigging its existing risk framework.

“Finding a CRO has been a real nightmare; we have finally managed to hire somebody who is expected to join soon,” said the chief executive of a small fund house.

The hiring spree is expected to jack up costs for the industry. On average, the salary for risk officers could range from Rs 30-60 lakh per annum and a chief risk officer earns up to Rs 1 crore. The dearth of talent has prompted some AMCs to look at stop-gap arrangements that include the rejigging of internal teams. “Risk management is a core and non-negotiable part of the fund management business. I can lose my job on non-performance but not on non-compliance,” said Swarup Mohanty, CEO, Mirae Asset Investment Managers (India). The asset manager had segregated its risk and compliance divisions last year. It now has five people in compliance and another four in the risk department, which is now headed by Manish Jha, who earlier reported to the compliance head.

A higher number of risk professionals can mean greater oversight and reporting on the risks that AMCs take on the investment and operations side. It may also compound conflicts within the AMC, especially if the interests of the top management are not aligned with that of the risk teams.

According to the Sebi circular, AMCs should have a CRO, who would be responsible for the overall risk management of the mutual fund operation, including the key risks. This is in addition to one chief experience officer (CXO)-level officer responsible for each key risk type. The CXO shall be the ‘head of department’ or official of the AMC up to one level below the CEO, other than the CRO. There shall be a clear demarcation between the roles and responsibilities of the respective CXOs and the CRO. The CRO or the risk management function of the CRO cannot be entrusted with day-to-day functioning, the responsibility for which shall lie with the respective CXOs.

“Everyone, including large AMCs, is struggling to find the right people. The CRO will have board-level responsibilities, which is why you need people of competence,” said a senior official of another large fund house.

According to him, a risk officer should ideally come from a mutual fund background. Given the level of seniority and salaries being paid, he said, you need someone who can hit the ground running rather than someone who will take a few months to get acquainted with the industry.

Both AMC and trustees are required to have separate risk management committees (RMCs), which will undertake an annual review of the risk management framework at the AMC and scheme levels. The CRO should be part of RMCs. RMCs have to report to the boards of AMCs and trustees, respectively, and recommend long-term solutions regarding risk management at the AMC level, as well as the scheme level.