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Aon keeps excellent tabs on its risk management by providing an “extreme amount of reporting” to company officials on their risks, said Chad Gardner, a student in the Evening MBA Program and manager of derivatives and financial risk for the company. “We spend a lot of money and a lot of time getting that information into the hands of our CFO and CEO so they know where we stand,” Gardner told students at the MBA Risk Management Conference during the panel “Managing Risk With Derivatives” at Gleacher Center October 14.
Erring on the side of too little information can be dangerous, he said. “If things start going badly and we’re not on top of it, underreporting is probably the one spot that could really do a firm in,” he said. “It’s a lot of responsibility and also makes things very interesting. It gives our senior execs a lot of need for insight into what we do and that’s why we put so much effort into it.”
Jay Feuerstein, ’80, president of Xenon Capital Management, advised GSB students to use the recent controversy at Refco for a lesson; fees for $2 million of the small company’s $45 million fund have been unavailable for two weeks, he said. “As a businessman, I have to look at this and realize, ‘I have risk where I never thought there would be risk,’” Feuerstein said. “If you’re in futures, you’re not supposed to have counterparty risk and fund management risk. But as I sit here today, there are accounts that are supposed to be safe by the law, but are possibly the object of fraud.”
Regardless of the outcome of the controversy, Feuerstein said, from now on he will dictate where his clients clear their funds. “This makes a very clear and strong case for further consolidation in the industry,” he said. “Someone like a little Xenon has to be very, very careful about where they do their business. We will only stay with the larger firms and those better capitalized.”
—Phil Rockrohr