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The standard portfolio theory doesn’t distinguish investors and asset managers and gives guidance on how a rational investor should choose his portfolio. Due to the duality of the optimization problem, there is no distinction between risk management and portfolio optimization. In reality, however, most of the investments are delegated to asset managers and this creates an agency problem which is at the root of the risk management topic. As far as the fund industry is concerned, under EU regulation, notably UCITS III, the Board is responsible for the risk management process and sub-contracting with the service providers, whereas the Asset Manager determines the portfolio strategy.
Proper Risk Governance implies the setting-up of checks and balances through the organizational...
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