According to a new research report by Chartis, “Key Trends in Buy-Side Risk Management,” integrated risk management is playing a more strategic role within buy-side institutions, with the trend set to continue as the tactical and functional execution of risk begins to align with strategy. However, the report, sponsored by SunGard, also indicated that most firms were behind in realizing the execution of risk management as an integral part of their investment strategy.
The report draws upon responses from 196 participants surveyed from 32 countries globally. Survey participation comprised of 33 percent C-level executives and 27 percent portfolio managers across institutional asset managers, wealth management firms, private banks, hedge funds, pension managers, and sovereign wealth with a wide range of assets under management.
The analysis found that risk management is seen as an integral and crucial component of investment strategy across 89 percent of respondents. However, a large disparity exists between participants understanding the importance of risk and the reality of day-to-day execution within their firms. Ninety percent saw risk as an individually driven aspect of portfolio management with each investment strategy driven by the person in charge. The report identified that there is significant room for revising risk infrastructure and the quality of risk data to take advantage of new opportunities afforded by integrated risk technologies.
When asked to identify the top risk management challenges and where organizations would benefit from improved use of risk data, analytics and reporting:
- 90 percent of respondents ranked better transparency and interactivity of risk analytics
- 79 percent cited multi-asset class risk systems
- 87 percent said improving granularity or frequency of risk reporting for internal stakeholders
In addition, 91 percent reported data quality was a significant or important challenge, while 87 percent cited risk data aggregation.
“As larger asset managers look beyond the compliance objective, they are seeking full oversight of their risk and the ability to be more nimble. The on-demand aspect of risk is increasing at the C level, and they do not want to have to wait for scenarios or reports. We also expect the trend for risk aggregation to continue down to mid-tier asset managers. The need to consolidate risk solutions and services to better manage risk in support of business objectives was also highlighted in this report. We found that 24 percent of firms have one system, 39 percent have two independent systems, and 28 percent have three or more.” – Peyman Mestchian, managing partner at Chartis Research
“This evolution follows the 2008 financial crisis as organizations want to know what unexpected risks they may face and to ensure that they meet the demands of the regulators – and investors want to know how risk management can help them to invest most effectively. If organizations under-utilize risk as a strategic component of their investment offering, then they are missing an opportunity. With the development of new integrated technologies that support an enterprise-wide view of risk, it is no longer a case of managing various risk functions in silos – it is now possible to gain a holistic view that helps improve investment decisions and reporting. Risk management should be fully integrated across the business to mitigate the severe consequences of reputation risk should risk assessments fail.” – Dr. Laurence Wormald, chief operating officer and head of research – APT, SunGard’s asset management business