Chartis: Latest Trends in Buy-side Risk Technology
Posted: 24 June 2015 | Author: Hugh Stewart | Source: Chartis
Asset managers play an increasingly pivotal role in the financial system. They have Assets under Management (AUM) equal to 75% of banking balance sheets on a global basis and are being described by some, controversially, as systemically important as the banks. There is no doubt that the unforgiving gaze of the regulator is being turned towards them with the inevitable future prospect of more reporting, stress testing, transparency obligations and the like.
Life is not made any easier for buy-side firms as there are other conflicting and contradictory challenges that make close and frequent measurement of performance against risk appetite more demanding and essential for survival.
Their search for yield and performance has been hampered for a long time by very low interest rates, a macro-economic environment heavily influenced by untested, arbitrary central bank policies and new political, emerging markets, energy and technology disruptions. These are having non-intuitive consequences. Therefore portfolio managers are considering a far wider universe of assets and asset classes including derivatives and alternative investments. They are taking over a lot more sell-side asset ownership and therefore their risks, personnel, additional support services and costs.
At the same time these increasing costs need to be sustainably managed downwards to retain and win clients, who are now more insightful about “passive” and “active” investing. Boundaries are being redrawn between alternative investors, institutional asset managers, private equity, infrastructure, lenders and new age fintech innovators. They are even playing new roles and responsibilities within electronic trading and derivatives market structures.
These drivers have a profound effect on buy-side’s risk management and its use of technology.
Risk management software platforms and services need to be “on-demand”, joined-up and nimble. They need to support all parts of the enterprise including senior management, portfolio management, risk supervision, collateral management, clearing, funding, liquidity management and even their clients.
There needs to be a special focus on risk management supporting and contributing to investment decision-making, performance management and optimization through configurable dashboards incorporating full asset coverage, multi-factor analytics, scenarios and macroeconomic data. We should not forget Excel as it remains omnipresent but should be managed with formal governance and infrastructure.
Data management, as frequently echoed throughout the market, is a critical success factor as you cannot operate any of this sophisticated risk technology without timely, accurate, comprehensive, auditable data. Virtually all firms still have a way to go when measured against a data governance maturity map.
The latest report from Chartis updates our earlier research on the current trends in buy-side risk management technology which highlighted regulation, market structure changes and investor behavior shifts. There has been little change in direction but there have been increases in velocity with some bumps along the way. Buy side risk tools, while converging with the sell side tools, will always remain somewhat different, due to legacy, their inventory management, investor reporting, history of out-sourcing and historical lower skilled resourcing levels. Chartis recently published its 2015 report for Buy-Side Risk Management Technology. To obtain the report please click here