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A cornerstone of successful investment strategy is effective risk management. Enterprise Risk Management (ERM) covers risk in the broadest possible terms, encompassing all forms of risk management activity agency-wide. The WSIB's enterprise-wide approach involves the Board, executive management, audit, operational, legal, and investment staff. Risks are seen as opportunities for success as well as failure. The risks the WSIB faces arise from both managing the assets and managing the organization. While the WSIB tries to anticipate every risk that it faces, unknown and unprecedented events will occur. The ERM program provides a framework to evaluate and manage uncertainty. Managing the key risk framework fosters a strong ERM program that enables proactive decision-making throughout the agency.
ERM Risk Appetite Statements
Risks arise from the deployment of the assets under our management in a fiercely competitive investment environment. Investments need to comply with standards that a prudent investor would use to manage the assets of others, within applicable laws and Board policies. The WSIB has identified two primary risks for managing assets: fiduciary and investment.

Fiduciary Risk - The risk of acting for reasons other than the benefit of our constituents. As a fiduciary, the WSIB is required to manage investments for retirement and public trust funds with the highest standards of professional conduct for the exclusive benefit of fund beneficiaries. The 15 member Board operates within established investment policies and procedures designed exclusively to maximize return at a prudent level of risk.

Investment Risk - These risks encompass all potential risks resulting from deployment of our assets into various investment strategies. These risks include market, liquidity, leverage/refinance, counterparty, currency, credit, and interest rate risk. They may stem from changes in political, economic, demographic, behavioral, and technological factors. The WSIB seeks to manage the overall level of investment risk and uncertainty by diversifying across asset classes, investment managers, sectors, strategies, and geographies. The WSIB measures and assesses investment risk using quantitative risk systems to inform qualitative discussions.
 
These risks stem from building and maintaining an investment organization. The WSIB must operate within a governmental framework while implementing investment management strategies that more closely resemble those of private investment entities. The WSIB has identified three organizational risks, strategic, governmental environment, and operational.

Strategic Risk - This is the risk of not being prepared to make the necessary decisions for meeting the needs of our constituents. We strive to have effective Board governance, the appropriate organizational structure for our mission, capable leadership, and an established strategic planning process.

Governmental Environment Risk - This is the risk of not anticipating and responding to changes in our governmental environment. The WSIB is a state agency operating under a government framework within a political environment that is not always aligned with our fiduciary duty or the practices and priorities of investment entities. The executive director and legislative liaison monitor proposed legislative changes that may affect our ability to accomplish our mission.

Operational Risk - Operational risk refers to losses that may arise from shortcomings or failures in processes, people, or systems. We strive to improve our control structure, training, and supervision and development of staff. To foster organizational growth and change, management is committed to creating an environment where staff continues to learn and to develop leading practices.
 
Reputation Risk - The WSIB must maintain its reputation in order to be a preferred partner in the marketplace, a trusted fiduciary by stakeholders and the Legislature, and a valued resource for the citizens of Washington. Failure in any of these five risk categories will damage the WSIB's reputation and credibility, making it difficult to achieve goals. The agency speaks with one voice. The Board has adopted rigorous codes of conduct and conflict of interest policies to ensure that its actions meet the most stringent standards. Ongoing education assists the Board members to make informed decisions.
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