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ENRICHING PERFORMANCE AND COMMITMENTS ENRICHING ACCOUNTABILITY AND INTEGRITY ENRICHING RESILIENCE AND SUSTAINABLE GROWTH OTHER INFORMATION

PRINCIPAL RISKS

The presence of numerous risks may impact the global economy and financial markets in 2024 and beyond. It is,
nevertheless a challenging and intricate task to accurately predict the risk outlook and trajectory for any specific year.
Despite the complexity of the task given the ever-changing business environment and uncertain geo-political outlook on
the global economy, our top-10 principal risks and our strategic responses are as follows:

R1 Macro-economic and Geopolitical Risks

Staying vigilant about emerging risks in local Our response:
and global markets is crucial as they can • Conduct internal periodic/regular assessments for risk
significantly influence our investment activities. due to economic factors and the potential impact to the
The economic landscape of the world today investment.
continues to be volatile, impacted by the • Conduct periodic engagement with external fund managers
aftermath of the Covid-19 pandemic, supply and other government-Linked Investment Companies to
chain disruptions, inflationary pressures as well stay abreast of economic forecasts and industry outlook.
as monetary policy uncertainty. geopolitical • Continuously enhance our investment processes, including
tensions and regional conflicts further the integration of ESg into all investment activities.
compound uncertainties, emphasising the need • Establish key economic indicators/triggers to monitor initial
for comprehensive risk management strategies. signs of economic uncertainties.
Risk Category: Emerging Risk

R2 RM Investment Risk

Investment risk, such as market risk, credit risk Our response:
and private market risk, refers to the potential for • Develop a strategic asset allocation that aligns with our
financial loss or underperformance associated overall risk appetite statement.
with investing in a particular asset or investment • Adopt diversification as a risk management strategy to
strategy. It encompasses various factors, reduce unsystematic risks particularly for concentration of
including market volatility, economic conditions, geographical and asset types.
regulatory changes and company-specific risks. • Implement a rigorous fund manager selection and
For entities like KWAP, the pension fund for investment strategy evaluation process.
public service employees, investment risk can • Implement various risk limits including value-at-risk
significantly impact the ability to meet long-term limit, modified duration limit, concentration risk limit,
financial obligations and provide stable returns counterparty risk limit and issuer risk limit to manage risk
for pensioners, potentially affecting the fund’s of our investment portfolio.
sustainability and the retirement security of public • Employ derivatives to hedge and mitigate volatilities on
service employees. our investments.
• Proactively conduct periodic stress testing exercises
Risk Category: Traditional Risk to assess our investment portfolio’s vulnerabilities to
historical stressed market events as well as ‘what-if’
scenarios.
• Establish a thorough credit analysis process which
includes credit ratings monitoring, credit evaluation and
credit review.

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