Operational Risk for the Buy-side:
Summary of Event held in London

November 17, 2004.

The IAFE's Operational Risk Committee (ORC) held its first event in London on
November 17, 2004 at Goldman Sachs' Fleet Street location. The event consisted of a
panel discussion devoted to key operational risk issues that are of importance to asset
management firms and was followed by a cocktail party. An estimated eighty people
attended the event, many of whom contributed to the lively discussion with questions and
comments.

The panel was moderated by Jonathan Howitt, head of Group Operational Risk at Man
Group plc. Panelists were from a variety of asset management firms, and included
Alastair Chrismas, Head of Internal Audit and Risk Management, RJ Kilm & Co.; Tim
Palmer, Head of Global Risk Management, AXA Investment Managers; David Ridgway,
Head of Group Risk, Schroders; Jared Siddle, Head of Risk Management, Fidelity
Investments.

One topic that received a great deal of attention during the course of the discussion was
"culture" and how operational risk managers can "embed" a best practice culture within
their organizations. This is especially true during times of "contagion risk" when risk
events hit a number of competitors in an industry sector, such as evidenced with split
capital trusts and precipice bonds. Additional topics that were discussed related to the
increased challenges for the industry as a result of cost pressures, reduced returns, and
heightened scrutiny on the part of investors, regulators, and shareholders.

Another key topic discussed was "business ethics" and the importance on instilling
"doing the right thing" within an asset management firm. This is of key importance to
firms that manage investor funds, because a high level of trust is implicit in the
relationship. The panel discussed the importance of investor education programs that
assist their clients with understanding disclosure documents and issues such as suitability
and appropriateness of investment decisions.

An additional challenge discussed is the one of aligning the objectives of a new product
with how it is sold to clients. For instance, the developers of new investment products
may have little awareness of how they are ultimately positioned to clients by either an
internal or external sales force. Because the product manufacturing process can be so
distinct from the sales process, there is a great need to align the objectives of each more
closely. Ultimately, it comes down to establishing a culture where the client perspective
is accounted for throughout the entire product development and review process.

One of the conclusions that the panel came to was that operational risk best practices can
be a "differentiator" as a sales vehicle and for how the firm positions itself in the market.
This was seen in the market timing and late trading event that spread across the asset
management sector in the United States; the mutual fund industry experienced a "flight to
quality" during this period and investor money was transferred to the more "trusted"
firms and away from the ones that were perceived to be more complicit in allowing
institutional investors to market time their funds.

A survey was circulated to the audience at the beginning of the session with a list of 15
risks, in an effort to obtain a quick snapshot of what risks those in attendance perceived
as the most compelling facing the asset management industry. The top five risks were
calculated during the course of the session. Regulatory, reputation and franchise risks
(sector or company specific) came out as the top concern for the attendees of the event.
Outsourcing (clearing, custody, registration, valuation services, IT) was the second risk
that was perceived by the attendees as being of significance to the buy-side. The third,
fourth, and fifth risks were determined to be management of conflicts and fund
independence; breaches of (or drift from) mandates, manager performance monitoring;
and fiduciary obligations and segregation of client money.

The ORC wishes to extend its appreciation to the panelists and moderator for
contributing their knowledge and insight into what turned out to be a lively discussion of
operational risk buy-side issues. In addition, Oliver McCarthy of Lloyds TSB calculated
the results of the poll for the attendees during the course of the panelist discussion and is
warmly thanked for assisting with the event. The ORC would also like to thank the
sponsors, FitchRisk and Financial Risk Management, for funding the event, and the
audience for their probing questions. Lastly, the ORC would like to thank Goldman
Sachs for providing spacious facilities for the event, and PRMIA for their co-sponsorship.
The ORC hopes to sponsor future events in London, which will posted on its web site at:
www.iafe.org.