Risk Management

Our risk management framework provides 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 approves the Group’s risk management framework and sets the risk appetite. This guides management to proactively identify, monitor and manage the material and emerging risks that could impact the 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 annually 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 evolves.

The Board delegates responsibility for implementing the risk management framework, and managing the material risks within the appetite set, to the Group CEO. The Group Chief Risk Officer is responsible for designing and updating 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. Management are held to account for managing the material risks within the appetite, thus enabling the Group to make risk conscious decisions and generate appropriate returns, in a controlled and deliberate manner. 

Managing risks associated with COVID-19

During FY21 in addition to the ongoing enhancement and embedding of the risk framework, the key area of continued focus was managing the risks resulting from the unprecedented COVID-19 pandemic. Separate COVID-19 risk registers have been maintained and operated ‘live’ to identify, monitor and manage the COVID-19 related risks. Areas of specific focus included 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. 

Managing risk to deliver our strategy

The Board endorsed an updated risk framework during 2021. The updates included the introduction of two new material risks. The first related to Environmental, Social and Governance (ESG) risk and the second, the longer-term risks relating to the COVID-19 pandemic. 

The Board has a lower risk appetite in the management of critical areas such as investment performance, regulation and legislation particularly new ESG-related laws and regulations, behaviour and conduct and the risks associated with managing the COVID-19 pandemic, as they 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.

With the completion of the acquisition of Thompson, Siegel & Walmsley (TSW) in Q4 FY21, the Board commenced, and will continue, its oversight of the integration of the TSW risk framework with the Pendal Group risk framework. Completion will occur in FY22.

Material risks

The Group actively manages a range of financial and non-financial 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 with strategy

Investment capability



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 appropriately manage the health, safety and wellbeing of employees.

The risk that the Group fails to effectively consider the future impacts 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 Planning (BCP) plans are tested and COVID-19 management teams are in place and meet regularly. 

  • 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 to operate 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.

  • Return to office plan implemented and flexible working policy updated.

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 of which 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 Board governance structure.

  • Employee performance management process and remuneration aligned to delivery of strategic objectives.

  • Robust acquisition search, due diligence and integration processes, engaging subject matter experts and external consultants for support.

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 opportunity. This includes external factors such as the markets, geopolitical events and competition. 

Risk Management
  • Annual strategy and budget process.

  • Strategy and risk management processes to continuously monitor and manage external threats and opportunities.

  • Governance processes to support effective decision making.

  • Variable remuneration aligned to strategic objectives.

  • Post Brexit, Irish management company established, to allow the continued distribution of relevant products across Europe. 

  • Continuing pipeline of new product with a thematic water and waste investment team joining in FY21.

  • US Mutual funds re-structured and in-house responsibilities and governance implemented.

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 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
  • Successful transition during FY21 from longstanding Group CEO to new Group CEO through internal promotion.

  • Acquisition of TSW during FY21 increased our pool of talent and diversified investment strategies. 

  • Competitive remuneration structures in the relevant employment markets to attract, motivate and retain talent, with alignment to client and shareholder outcomes. 

  • A Global Head of Remuneration appointed during FY21 to oversee remuneration practices across the Group.

  • 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 of proposals for new team acquisitions to ensure areas such as cultural fit, product offering and financials are robustly considered.

  • Increased focus on Diversity, Equity and Inclusion (DEI). Global steering committee established.

Material Risk

Environment, Social & Governance (ESG)

Risk Description

The risk that the Group fails to adequately progress on executing its ESG and Responsible Investing strategy.

This includes the risk of not developing products to meet client needs in a timely manner or failing to adequately meet evolving ESG stakeholder expectations.

Risk Management
  • Regular review and enhancement of the Group’s ESG strategy.
  • Specific ESG-related products launched, following a robust new product development process. Including the Regnan Global Equity Impact Solutions strategy and the Regnan Sustainable Water and Waste Fund in the UK.
  • Ongoing monitoring of external market Insights and evolving client needs.
  • Internal and external training provided on specific ESG-related topics such as Modern Slavery.
  • Recruitment to build out specialist teams providing ESG support, oversight and governance.
  • Ongoing integration of ESG considerations into investment processes for relevant strategies.
  • Continued investment in processes and systems to enhance controls, improve efficiency and help meet ESG regulatory changes.
  • Ongoing evolution and enhancements in ESG practices within the Group’s operations, including Modern Slavery and Climate Change.
  • Enhanced ESG related disclosure reports. This includes the Pendal Australia Responsible Investments statement, Human Rights statement, Pendal Group Sustainability Report, Pendal Group Corporate Governance Statement and J O Hambro Capital Management’s Stewardship Code for 2020.
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 process to assess behaviour and conduct.
  • Remuneration and performance management processes supports good 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, where relevant.
  • In response to regulatory developments, senior management roles, responsibilities and accountabilities updated in J O Hambro Capital Management (UK and Singapore).
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 resource (including human capital), ineffective execution and poor management of project interdependencies. 

Failure to effectively manage the material risks arising from our global transformational change program focused on enhancing operational infrastructure.

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 Australian major change projects.
  • Continued monitoring of the global data transformation program, including how we buy data related technology; use data to improve the client experience and 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 their investment objectives or that there is a failure to achieve consistent long-term performance that delivers on the clients’ expectations.

Risk Management
  • Talent hiring and succession planning. 
  • Clearly defined investment strategies and investment processes within stated risk parameters.
  • Regular independent investment risk reviews and analysis of portfolio risks across all asset classes and strategies (including market, liquidity and credit counterparty). 
  • Regular client reporting and performance update.
  • Formal approach to product governance and innovation including management of the product lifecycle.
  • Ongoing external insights into how client preferences are changing.
  • Several new products were launched in FY21 to meet client demands, such as an ESG related impact fund and a thematic fund.
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.

In the current environment, failure to manage the negative impact on fund flows: 

  • In the UK and Europe caused primarily by external factors, including Brexit and COVID‑19. 
  • In Australia, by the Banking Royal Commission and by our significant client Westpac as they execute their exit from wealth management.
Risk Management
  • The acquisition of TSW increased the Group’s FUM, provides future growth opportunities and a broader product offering to help meet client expectations.
  • Client engagement and distribution is a key part of the overall Pendal Group strategy. This was updated during the year and was approved by the local Governance Committees and the Pendal Group Board.
  • Progress updates on implementing the Distribution strategy is a key part of the regular CEO reports to the Pendal Board and to the local governance committees.
  • Ongoing acquisition of external insights into how client preferences and market requirements are developing.
  • Fees structures benchmarked and updated where required.
  • Daily monitoring of changes in FUM and the sales pipelines. Regular Board reporting and discussions on market trends and material changes in FUM.
  • Operational restructure and recruitment to expand distribution capability largely completed in Australia, in progress in the US with the acquisition of TSW, and underway in Europe.
  • Implementation of technology solutions and data related enhancements underway to better service clients. 
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 Financial Conduct Authority (UK)’s Senior Managers and Certification Regime which is being replicated by other national regulators.
  • The expansion of The UK Stewardship Code.
  • The implementation of the European Sustainable Finance Disclosure Regulation (SFDR) and similar global regulatory initiatives. 
  • Legislation and regulation on modern slavery and new financial product design and distribution obligations in Australia.

As a result, there is a risk of failing to meet the new standards or account for the increasingly higher costs of compliance.

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. Several projects are underway to implement regulatory changes.
  • 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 enhance processes and systems such as substantial shareholder reporting and compliance employee reporting requirements.
Material Risk

Technology and data (including cyber)

Risk Description

The risk that the Group does not optimise the use of data and digital technology. This may negatively impact the Group’s ability to meet external demands and 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.

Risk Management
  • Multi-year global technology and data management projects underway to enhance processes and systems. 
  • Recruitment of dedicated data specialists continues.
  • Technological and information security enhancements made where appropriate, to support remote working as part of managing the COVID-19 pandemic.
  • Global Data Council in place to provide robust governance and oversight over key technology related transformation projects.
  • Participation in external forums to share good practices and enhance internal processes and systems.
  • Independent internal audit and other assurance reviews carried out over the design and effectiveness of technological, cyber and data systems of internal controls.
  • Range of technology and data related polices in place, these are periodically updated, approved and communicated to colleagues.
  • Regular review and testing of Disaster Recovery and Business Continuity Plans. 
  • Periodic 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. 

Failure to manage the business’s exposure to heightened supplier risks as it introduces and transitions to new infrastructure suppliers, e.g. back office providers. 

Risk Management
  • Periodic review of operating model includes consideration of the areas where we want to use third party suppliers.
  • Supplier management due diligence process. Enhancements implemented as part of the Modern Slavery regulatory change in Australia.
  • Supplier management governance framework, policies and procedures.
  • Regular monitoring and review of service level agreements and performance standards in place.
  • Independent annual assurance review 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 plan for the 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 clients when establishing new financial products and building them to scale. This exposes the Group to the same potential loss of capital as clients. 

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. US$35m term debt facility with full repayment targeted over a three year term. An additional undrawn A$25m working capital loan facility in place as a risk management measure.
  • Monthly offshore earnings hedged into Australian dollars.
  • Capital management 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 tested.
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