In the institutional investment sector, risk management means thinking about a lot of doom and gloom, but for Danny Ip, the job is more about being prepared for what could happen tomorrow rather than forecasting what storms lie ahead
The TTC Pension Plan’s director of investment risk and analytics employs an analytical approach to measuring portfolio performance and auditing risk scenarios, thanks to actuarial science. “It’s not about forecasting what happened, but just in case, what if that happened? And then what would be the possible impact? And then you ask yourself, ‘Now are you prepared?’”
Preparation is key, says Ip, whereas forecasting can leave institutional investors vulnerable by trying to predict events they can’t know will happen. “The bigger risks should be, what could actually surprise you?”
The data revolution has taken industries around the world by storm. But in a new reality for financial research, is it possible there still isn’t enough data for the work needed today? Ip thinks so. “The way that people [analyze] data will continue to innovate it . . . but first of all, you have to have enough data.”
Despite analytical tracks dating back to the 1950s, the specificity of historical data sometimes doesn’t go far enough, he notes. The analytical evolution of financial research will be supported by artificial intelligence tools analyzing existing information, but Ip worries about the amount of data and its integrity.
His attraction to the subject led him to study statistics at the University of Toronto, but early on in his studies he learned about actuarial science and it changed his perspective. With a major in statistics and a minor in actuarial science and economics, he was ready to embark on a journey through the world of finance.
In his first role at Aon, Ip developed an interest in the investment side of the business. He credits his second role at Mercer for exposing him to asset liability study projects. After 10 years as a senior analyst and then an investment manager at the Hydro One pension plan, where he reviewed performance and evaluated risk scenarios, he was ready for a move.
The offer from the TTC plan allowed him the freedom to take risk analysis to the next level. In the role, he proposes ideas, which are reviewed and then deployed in collaboration with the team. “I have a lot of freedom, I would say, to try things that I would like to try.”
It has been a smooth transition between roles, says Ip, noting he has been pushed to be more creative in his first year at the plan. Since it has holdings in several hedge funds that can’t be reviewed day to day, he and his team must know the style of these funds and create approximations to evaluate risk.
“In this case, I’ll have to try to think about what would be a good approximate portfolio to mimic the performance of those hedge funds before I can actually conduct the risk analysis.”
While Ip hasn’t worked at a large investment organization, he believes smaller team environments have allowed him to perform different roles and become more knowledgeable in the various aspects of pension management. “You can learn a lot more because you have to wear different hats [and] work on many different areas and projects. At bigger teams, . . . [workers] may have to be more [specialized] in certain areas.”
Bryan McGovern is an associate editor at Benefits Canada and the Canadian Investment Review.