Asset manager of the year: Nuveen

Operational Risk Awards 2017: Nuveen successfully blends op risk platforms from both sides of Atlantic

Mihir Trivedi, Nuveen (left) and Peter Kulczycki, TH Real Estate

Nuveen, the US asset management subsidiary of pensions giant TIAA, had to perform a balancing act when it acquired the real estate investment arm of fund manager Henderson Global Investors, which had operations focused on Europe and Asia-Pacific. Both companies had robust operational safeguards in place already, but the challenge lay in creating a unified op risk framework that would combine the best of both companies into a merged entity, focused purely on real estate investment management – TH Real Estate.

Done correctly, the unified framework could help to dramatically reduce op risk losses by enabling managers to promptly report incidents. Done incorrectly, however, the companies would be stuck with two separate risk management functions that couldn’t talk to one another.

Mihir Trivedi, director of operational risk management at Nuveen, was charged with implementing the project for TH Real Estate, which has $99 billion in assets under management across Europe, Asia and North America. The comprehensive framework had to cover everything from third-party risk management to supplier risk; incident management to key risk indicators, and much more besides.

“From a transaction and operations aspect, as we merge cultures together, you’re always going to have an overlay of systems and processes,” says Trivedi. “It’s important to make sure that operations are aligned so front-office activities and business are not disrupted.”

Henderson came with its own legacy operational risk framework, which TIAA kept in place until late 2016, when it was decided they should integrate. “The idea was to create a global real estate institutional platform and sets of funds and mandates,” says Peter Kulczycki, deputy global head of risk at TH Real Estate in London. “Back in the Henderson days, there was an operational risk framework that specifically covered the property business. When we set up the joint venture, it started off with separate operation models between EU, Apac and the Americas. That continued until the businesses were formally unified.”

Working with Trivedi, Kulczycki brought across the operational practices and risk management that he utilised for the EU and Apac businesses. “We started discussions on what it would look like to have a global real estate platform from an op risk perspective,” he says. “That takes us to the start of this year when we were drawing up plans to create the operational risk framework for the global business.”

The challenge was “to implement that physically, culturally, technologically, while remaining sensitive to the needs and expectations of Nuveen and TIAA,” says Kulczycki. 

Sources of operational risks at the combined entity run the gamut from generic risks, such as fat-finger errors, to risks that are specific to the real estate business, such as vetting property managers and the risk that a visitor on a property gets injured.

At Henderson, Kulczycki developed a taxonomy based on the operational risk categories contained in the Basel framework. “You’ve got classics like internal and external fraud, and business disruption,” he says. “We also see a lot of process-based incidents, and this gives us the opportunity to assist the business in getting to the right place. Another one is regulatory change management.”

The completed framework at TH Real Estate is aligned with the enterprise risk system at TIAA, which has defined risk categories that span financial, strategic, operational, legal, compliance and reputation. “As we continue to identify risks, we ensure that they are mapped back to those enterprise categories so there’s a distinct and common taxonomy across not only TH Real Estate but all of our affiliates,” says Trivedi.

Kulczycki explains that the key to the successful roll-out of the framework was fostering a sense of co-operation between risk officers and business line managers.

“Culturally, the misinformed image of the risk function as the second line and the police needs to be overcome,” says Kulczycki. “A lot of it is about facilitating positive behaviours. When we entered this project, there was a positive tone from the top that gets momentum going. But you also need to be working with business to reinforce that operational risk is something that can help them to achieve their objectives.”

Portfolio managers, in particular, needed to be convinced that risk management is there to help, not hinder, day-to-day business activities. “The front office is key,” Trivedi says. “We’re not there to stop what they’re doing or look over their shoulders, but empower them to do what they do. Once you’ve got them and they say this makes sense, that one success cascades downwards.”

In order to gain trust, the risk function gave assurances that incident reports would not trigger repercussions for the business lines in question.  

“We don’t focus on the fact that you have X number of operational incidents,” says Kulczycki. “It’s the fact that they’re being acknowledged by the business, logged and resolved. In the EU and Apac, we’ve had operational incidents with significant potential negative financial outcomes, but because of the buy-in of senior management and the willingness of the business to discuss and resolve, have taken those impacts down to zero or near zero. We’ve seen that happen already, and it’s something that I expect for the US business.”

The tone from the top was set by senior executives Mike Sales, head of TH Real Estate, and Chris McGibbon, head of TH Real Estate Americas, as well as the chief executives of Nuveen and TIAA. “Sponsorship is very important in any type of operational risk implementation,” says Trivedi. “We have support that allows us to implement it. One way of doing that is ensuring that both our business sponsors and risk sponsors have embedded risk and objectives as goals.”

Clarification, June 27, 2017: An earlier version of this article stated that TIAA acquired Henderson Global Investors, rather than solely the real estate investment arm of Henderson Global Investors. TH Real Estate’s AUM figure has also been updated.