What is Risk Management?
Risk Management is a firm’s internal management of exposure to a variety of risks: credit, concentration, country, exchange rate, interest rate, investment, liquidity, market, operational, settlement, volatility, etc. Risk Management is an independent group, division or unit that seeks to protect the firm as a whole. Risk Management groups set guidelines for other units to follow and monitor and enforce these guidelines. Risk Management is often split into Credit, Region and Market Risk groups as J.P. Morgan is structured. Certain companies, like BlackRock also offer external risk management services to governments, corporations and other investor groups.
Different Types of Risk
- Credit risk (also called default risk) is the risk associated with borrowers who defaults on making debt payments.
- Country risk is the risk of sovereign nations freezing foreign currency payments (conversion or transfer risk) or defaulting on obligations (sovereign risk) often from nationalization, expropriation or excessive taxation.
- Concentration risk is the risk from overexposure to a single company, industry, region, etc. that can generate sufficient losses to threaten core operations.
- Liquidity risk is the risk that an asset or security cannot be traded in a time frame to prevent incurring losses.
- Legal risk is risk associated with financial (or reputational) loss from regulatory action (e.g. SEC) and other contractual and non-contractual reasons.
- Market risk is usually subdivided into commodity risk (risk that commodity prices change unexpectedly), currency risk (risk that foreign exchange rates change unexpectedly), equity risk (risk pertaining to the stock market as a whole) and interest rate risk (risk that interests change unexpectedly).
What are common post-MBA Risk Management positions?
Risk Management positions involve financial modeling, portfolio analytics, and risk and quantitative analyses. Credit Risk groups involve exposure to different products and industry verticals. Country Risk groups have more of an economic and political component. These Country Risk groups assign internal sovereign ratings based on qualitative and quantitative information.
Formal Post-MBA Risk Management Programs are much less common than Post-MBA Investment Banking, Investment Management, Management Consulting and Sales and Trading Programs are. Many of the alternative business-related Masters programs, such as a Masters of Financial Engineering (MFE) or a Masters of Science in Risk Management & Financial Engineering offer more of a pipeline into Risk Management positions. 6% of Haas’ 2014 MFE class entered Risk Management per its Placement Report.
How should applicants with Risk Management post-MBA goals target business schools?
Scan the employment reports for MBA and alternative business-related post-graduate program (e.g. MFE) to see whether the target schools and programs recruit for risk management positions. You do not want to attend a school or program only to discover that companies do not come on campus to recruit for risk management positions. So, if you are certain that risk management is the field you wish to pursue, Haas’ MFE program might offer a higher ROI for you than graduating with a Haas MBA with a Finance Area of Emphasis.