Risk management begins with the Board, with the review and oversight of the risk management framework. It continues with executive management, through the ongoing formulation of risk management practices and related execution in managing risk via Annaly’s in-house risk department. In 2016, Annaly augmented its risk personnel with several additions who were aligned to each of its investment options. To complement these hires, the company further prioritized its focus on liquidity across investment classes. Consequently, the realignment of dedicated risk professionals coupled with dedicated financing for each investment group, with adherence to the company’s coordinated capital allocation policy, creates an optimized relative value menu.
Annaly is subject to a variety of risks due to the business it operates. Risk categories are an important component of a robust enterprise-wide risk management framework. The company has identified the following primary categories of risk to its earnings, capital or business, which it classifies, assesses, measures and monitors.
Annaly maintains a firm-wide risk appetite statement which defines the level and types of risk that the company is willing to take to achieve its business objectives and reflects the company’s risk management philosophy. Fundamentally, Annaly will only engage in risk activities that are expected to enhance value for shareholders based on the company’s core expertise. Annaly’s activities focus on capital preservation and income generation through proactive portfolio management, supported by a conservative liquidity and leverage position.