AmazonScience/document-haystack

1contributions as plans mature, increased, or offset by changes in the longevity profile of the 2pensioner population.3Equity compensation risk: Equity compensation is linked to our share price and performance 4and so is a right way risk since liabilities will primarily only increase if the share price and 5relevant performance improves. We monitor and manage the resulting profit and loss 6volatility and enter into short-term derivatives to retain a balanced risk position as and when 7necessary, in line with our risk appetite and strategic goals.8Structural foreign exchange: Structural foreign exchange (FX) risk arises from our non-Euro 9denominated subsidiaries, primarily US Dollar and Pound Sterling. We monitor our structural 10foreign exchange risks on an ongoing basis and may selectively offset the risk positions with 11the primary objective to stabilize consolidated capital and internal capital adequacy metrics.12Foreign exchange: Foreign exchange risk arises from our assets and liabilities that are 13denominated in currencies other than the functional currency of the respective entity. These 14positions are translated at the period end closing rate and can give rise to fluctuations in the 15reported value of the investments. Foreign exchange gains or losses resulting from the 16translation and settlement of these items are recognized in the consolidated statement of 17income as net gains or losses on financial assets/liabilities at fair value through profit or loss. 18We may selectively use instruments to offset foreign exchange exposure as and when 19necessary to retain a balanced risk position in line with our risk appetite and strategic goals.20Management of Financial Risk21The above-mentioned types of financial risks are subject to dedicated approval processes 22which are designed to ensure that all aspects of risk, capital and funding are considered 23before new risk exposures are taken. For new co-investment and seed capital requests, for 24example, there is a clearly defined approval authority matrix dependent on the size of the 25capital request. Investment allocations and requests are reviewed and monitored by the 26Capital Investment Committee and27 assigned to the respective authority. The consideration of 28sustainability risk and adverse impacts is part of the investment approval process.29Market risk exposure is identified and captured based on our risk type framework covering 30equity, foreign exchange, interest rate, credit spread, commodity, and idiosyncratic risk. Risk 31is measured by estimating the potential losses from a particular risk type. This is usually 32achieved by determining the exposure, the trend and potential change in market value as well 33as the covariance with other relevant assets and liabilities. Established capital models tailored 34to our risk profile are used to calculate the capital consumption of financial risks.35When necessary, approvals are granted subject to conditions to mitigate the potential risk to 36the Group and its stakeholders. Such conditions can include limiting concentrations in high-37risk sectors and/or geographies. One area where risk position offsetting is routinely used as a 38direct risk mitigation is the seed capital portfolio. 39A limit structure for the Group’s investments is in place with regular monitoring to ensure the 40risks remain within risk tolerance levels. The co-investment portfolio is also subject to bi-41annual reviews at the underlying fund level to ensure the risk profile is maintained and any 42emerging risks are escalated where necessary. Ad-hoc monitoring and/or reviews of any 43aspect of the financial risk portfolio are carried out as and when required.44The risk framework for co- and illiquid seed investments has been reviewed and enhanced to 45accommodate our growth strategy in alternatives investments. This includes multi period risk 46planning, portfolio risk and attribution analysis, a refined set of limits complementing risk 47appetite, and control thresholds as part of risk monitoring and decision-making. 48For sensitivity analyses on market risk exposures please refer to note ‘09 – Financial 49Instruments’ to the ‘Consolidated Financial Statements’. 50Credit Risk 51IFRS 7/IAS 152Credit risk arises from all transactions where actual, contingent or potential claims against 53any counterparty, borrower, obligor or issuer (which we refer to collectively as 54“counterparties”) exist. 55As an asset manager, we do not undertake business activities that result in material credit 56risk. For the Group, credit risk exposure relates primarily to cash and cash equivalent 57positions that are placed with third party banking and financial institutions. The 58counterparties are monitored via market parameters, the usage of independent credit ratings, 59ESG signals, and proprietary credit risk assessment. The related credit risk exposure to these 60counterparties is aggregated and managed within appropriate limits. 61To further diversify credit risk in our corporate liquidity management, other options have been 62used, including investing in government bonds, corporate bonds, and money market 63instruments. 64        65To our Shareholders Summarised 66Management Report67Consolidated 68Financial Statements Compensation Report Corporate Govern-69ance Statement70Supplementary 71Information DWS 2023 Annual Report72 73Risk Report7453 Financial Risk75The secret animal #4 is a "frog".