Guest post by Martin Botha, Head, Portfolio Construction & Risk Management solution, Risk Analytics
The financial crisis has redefined the asset management landscape. Like the eruption of Vesuvius back in AD 79, which erased the ancient Roman city of Pompeii off the map, the financial crisis wiped out the old investment world order, forever.
One of the key attributes of the new global economy is omnipresent regulatory oversight: UCITS, AIFMD and Dodd-Frank have become an integral part of the daily lives of financial services practitioners. Coupled with continued unfavorable market events such as the Eurozone crisis, increased regulatory requirements have prompted regulators, investors and internal stakeholders to seek the confidence of enhanced risk transparency in asset management. In practical terms this means more frequent, accurate and consistent risk reporting from hedge funds, fund managers and other types of asset managers.
One of the key findings of the recent AIMA survey Beyond 60/40: The evolving role of hedge funds in institutional investor portfolios (published in May 2013), conducted amongst the most influential institutional investors in hedge funds globally, was that many investors welcome increased regulation of the hedge funds since the financial crisis.
The paper also mentions transparency, generated by accurate and consistent risk reporting, as one of the key considerations when appointing a hedge fund manager. Knowing what risks asset managers are taking and understanding how those could be affected by a variety of market scenarios is gradually becoming a driver in manager selection, with some investors saying they negotiate transparency up-front prior to investing.
Transparency is not just important to investors, for whom the ability to monitor volatility and VaR in parallel with manager's P&L, risk budget and portfolio allocation may be paramount, for example. In parallel, internal stakeholders with hedge funds and asset management firms increasingly demand risk reports to provide critical insights for risk management and risk-aware decision making.
Without doubt deploying the right technology is integral to helping managers keep ahead of the risk curve. But what features should one look for so that applications produce the desired results, i.e. insightful risk data?
One to keep an eye out for is accessibility; the ability for stakeholders to access risk reports regardless of time, location, connectivity or device. Providing a scalable way of sharing risk reports in a secure environment is also considered important. For a number of asset managers, easy report sharing is crucial as it allows them to enhance client relationships and increase synergies with partners.
Cost-effectiveness, however, is still the most important attribute. No matter the variety of bells and whistles a solution comes with, cost remains one of the most decisive factors in the vendor selection process (unsurprisingly so).
This brings us to the question – can a solution be cost-efficient and satisfy all regulatory and stakeholder requirements at the same time?
On-cloud risk reporting solutions marry the two by offering risk oversight within a cost-effective reporting tool. Eliminating the need to invest in an in-house deployment or fully-hosted service, IBM Algo Risk Reports on C loud features a web-based client portal and flexible report options, including “Active Risk Reports”. These offer access to risk analytics regardless of time, location or device, as people are increasingly mobile and desire access to information on-demand, via desktop, laptop or iPad, for example.
To find out how IBM Risk Analytics can help you gain competitive edge while complying with increasingly stringent regulations attend the webinar “Time to get active with Risk Reports”, in which I will be presenting, on June 25, 2013 at 11:00 AM EDT (4:00 PM GMT).
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