中国投资有限责任公司

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Investments

Objective and Approach

The objective of risk management is to put in place effective policies, mechanisms, systems, and processes for investment and operations to maximize the returns for the shareholder within an acceptable risk tolerance.

 

Risk management is a company-wide effort involving every business line, department, and individual. It is embedded throughout the investment life cycle, from the overall portfolio to general asset classes and to specific investment strategies and sub-strategies.

 

System and Mechanism

CIC has a comprehensive risk classification and management system involving the Executive Committee, Risk Management Committee, and relevant departments to manage all kinds of risks: market, credit, operational, liquidity, strategy, legal, reputational, and country risks.

 

In line with policies set by the Board of Directors and the Executive Committee, the Risk Management Committee oversees CIC's risk management strategies and approaches. Its key responsibilities include the following: Reviewing risk management strategies, policies and procedures; Determining the risk budgeting and allocation plan; Reviewing risk management and assessment reports; Reviewing assessment standards, management schemes, and internal control mechanisms for major risk drivers and events as well as key business processes; Conducting periodic reviews of the risk profile of asset allocations and the execution of the allocated risk budgets; Reviewing the risk management strategy and contingency plans for major risk events; Reviewing other risk-related issues under the authorization of the Executive Committee.

 

The Risk Management Committee, which oversees the risks in CIC's investment and operation activities, is comprised of the Chairman and CEO, President, related Executive Vice Presidents, Chief Risk Officer, and the Heads of the Department of Risk Management, the Department of Law and Compliance, the Department of Public Relations and International Cooperation, the Department of Asset Allocation, the Department of Investment Operations, the Department of Finance and Accounting, the Department of Internal Audit, the General Office, and the Department of Research. Other members of senior management and the heads of the investment departments attend Risk Management Committee meetings as needed.

 

The Operational Risk Management Committee and the Valuation Committee are two subcommittees established under the Risk Management Committee. The Operational Risk Management Committee is responsible for reviewing operational risk management policies and the relevant rules and regulations, examining and approving operational risk reports, and supervising the investigation and handling of operational risk incidents and implementation of action plans. The Valuation Committee is mainly responsible for reviewing and approving the company’s valuation accounting policies and valuation reports, the sources of market prices and parameters used for valuation, and valuation models and fair value adjustments.

 

CIC's comprehensive risk management system comprises the following pillars:

  • Three-layered system: includes basic procedures and management approaches designated according to different types of risks and risk management guidelines; provides institutional guarantees for scientific, well-defined, and orderly risk management.
  • Three-tiered system: a company-wide, inter-department, and intra-department management system; standardizes risk management across various operations, including investment, management, and supervision, thereby enhancing efficiency and standardization in operations and management.
  • Three lines of defense:

     

    For the first line of defense, investment departments remain well informed of the risks associated with the investment products within their mandate and follow CIC's risk management rules in their investment activities.

    For the second line of defense, the Department of Risk Management sets risk limits on various asset classes based on the risk budget; formulates the risk management framework, mechanism and processes; works with the Department of Law and Compliance and the Department of Public Relations and International Cooperation to monitor and manage risks across the Committee.

    For the third line of defense, the Department of Internal Audit and the Department of Institutional Integrity audit, supervise, and evaluate company-wide risk management to ensure procedural compliance and effectiveness in risk management and internal controls and make recommendations to redress inadequacies if these arise.

Management of Multiple Types of Risks

In 2018, the company formulated and revised risk management guidelines to meet its investment business expansion needs and changes in portfolio risk characteristics. It improved the management of total portfolio risks, and ensured coordination of the company’s internal risk management to effectively supervise the strengthening of post-investment management. It implemented pre-investment risk identification and evaluation and post-investment risk monitoring and early warning for investment projects to ensure that investment activities are carried out orderly and according to the rules and regulations. It also improved the various risk management tools to assess the value of existing Level 2 and Level 3 assets promptly and scientifically rigorous. It then offered suggestions for the rectification of abnormal or operational risk events, and regularly tracks and supervises the implementation of those rectifications.

 

Market Risk Management

CIC invests according to an underlying principle of gaining investment returns within acceptable risk tolerance as set out in its overall business objectives.


The comprehensive risk monitoring system monitored risks from the macro level, to the market and to the portfolio. At the macro level, the company monitored the macroeconomic conditions of the key economies and drew up a risk heat map, showing the company changes in macroeconomic factors and transmission mechanisms. At the market level, CIC constantly monitored the relevant systemic indices and volatility index constantly and improved its stress-testing analysis. At the portfolio level, it used the Fengye System to monitor the risks and performance of the overall portfolio in a multi-dimensional and multi-perspective approach.

 

Credit Risk Management

The major credit risks faced by CIC's investments include sovereign credit risk, counterparty credit risk, and the risk associated with invested assets.

 

Based on the portfolio’s risk exposure, CIC regularly published the “Sovereign Credit Risk Report” covering 110 countries and regions. It prospectively analyzed the key factors driving macro risks for sovereign credit in the current year. CIC also published specific thematic reports on market movements to assess risks for sovereign credit and to give early warning. The company also strengthened counterparty risk management, evaluating the dynamic risks of counterparties based on the risk exposure of different products. CIC constantly tracked the credit risk profile of the invested assets and improved early warning and response. It urged investment departments to enhance post-investment management and adjust or exit projects in a timely manner.

 

CIC constantly tracked the credit risk profile of the invested assets and improved early warning and response. It urged investment departments to enhance post-investment management and adjust or exit projects in a timely manner.

 

Internal Control and Operational Risk Management

We improved our policies and procedures and refined our operational risk management capabilities by setting up a tailored internal control and operational risk management framework to support business.

 

In 2018, CIC developed and revised 15 risk management guidelines, offered specific opinions for 19 rules. It formulated Operational Risk Management Manual, built an operational risk tolerance and resolution system, and progressively assessed operational risk tolerance metrics. It organized regular assessments of operational risks and maintained the list of common risks and responding control measures. The company also stepped up monitoring operational risks in key business areas such as trading and investment processes. In 2018, a more authentic and complex business continuity drill was carried out to improve emergency response capabilities.

 

CIC values the prevention and management of reputational risks, and has continued to do well in information disclosure and tracking public opinion to assess reputational risks. In selecting investment projects and partners, CIC always considers reputational risk as a major factor in decision-making. CIC also seeks to fulfill its corporate social responsibility and create a favorable image of a responsible corporate citizen and respectable partner.


 

Investment Portfolio Decision-marking Process

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