Every Risk is Financial Risk for Investment Managers

What is the biggest risk for an investment manager?

Financial risk.

All financial services providers are in the business of buying, selling, slicing, and repackaging risk—by financial means. So, a firm's operational risks are mostly also financial risks. And when your marketplace is the financial market, your market risk is really financial risk as well.

It is hard to split out the risks faced by investment managers into neat categories—but that’s what I set out to do by analysing 100k pages of company accounts using AI for references to risk. One limitation of this approach is that the frequency of risk mentions may reflect factors such as regulatory disclosure requirements, rather than the firm’s own perception of material risk. Another is that a company’s financial accounts will naturally skew toward financial risk. Still, my assumption is that disclosures in annual accounts are at least directionally indicative of what firms view as important.

In the latest annual accounts of 1,127 investment managers, there were 1,325 mentions of specific financial risks faced by these firms. When categorised more closely, financial risk for investment managers boils down to:

1. Liquidity risk
2. Credit risk

Liquidity risk captures the threat that a firm will struggle to meet financial obligations when they come due. Credit risk describes the possibility that counterparties fail to honour their commitments. Notably, one firm’s liquidity risk frequently manifests as another’s credit risk, and vice versa—forming a nice feedback loop of financial exposure.

Beyond explicit financial risks, market and operational risks featured prominently, underscoring their inherent overlap with financial risk.

Coming in fourth was Regulatory and Compliance risk, with nearly 600 references in the annual accounts. To try to gain a more granular view of this type of risk, I counted key regulatory and compliance terms across all the accounts—not just in the context of risk.

Predictably, mentions of the FCA dominated (3,474 instances), reflecting its central role in overseeing UK financial firms. Similarly, the prominence of Capital Requirements (876 mentions) and MIFIDPRU (421 mentions) underscores the difficulty of neatly separating regulatory from financial risks. Capital or liquidity issues are both regulatory and fundamentally financial.

There were over 700 mentions of ESG in the annual accounts, yet it only appears as part of ESG / Climate on the risk chart with a count of 99. It seems that while ESG continued to be on the agenda for many investment managers, it is less frequently mentioned in the context of risk. For example, it may be mentioned in the context of the company’s strategy or policy rather than as a risk: “We are committed to embedding the new ESG policy across the business and have established a working group to assist in its implementation.”

Consumer duty received a modest 181 mentions. This likely reflects the wholesale orientation of many firms, whose clients are institutional rather than retail investors.

The analysis reinforced that while separating and classifying risk helps clarify it conceptually, the reality remains complex—risks are inherently correlated and comorbid. Professionals in regtech or compliance engaging with investment managers (or other financial institutions) must acknowledge that the specific risk they target sits within a dense, interconnected web. Solutions must therefore be holistic and closely integrated into the realities of broader business operations if they’re genuinely going to add value.

How I did it

The analysis is based on the most recent annual accounts from 1,127 investment managers filed at Companies House between 2024 and March 2025. Mentions from strategic reports, members’ reports, and directors’ reports were extracted and classified using a bespoke risk taxonomy powered by OpenAI’s o3-mini model.

Key regulatory terms were tallied straightforwardly across annual accounts. Similar terms were grouped to streamline categorisation.