Buy Side Integrates Risk Management

Terry Flanagan

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, according to a report by research firm Chartis. However, most firms are behind in realizing the execution of risk management as an integral part of their investment strategy.

A Chartis survey asset managers found that risk management is seen as an integral and crucial component of investment strategy across 89% 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.

The report, which was sponsored by SunGard, found significant room for revising risk infrastructure and the quality of risk data to take advantage of new opportunities afforded by integrated risk technologies.

The top benefits and challenges associated with improved use of risk data, analytics and reporting include better transparency and interactivity of risk analytics (cited by 90% of respondents), multi-asset class risk systems (79%), and improving granularity or frequency of risk reporting for internal stakeholders (81%).

In addition, 91% reported data quality was a significant or important challenge, while 87% cited risk data aggregation.

“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,” said Peyman Mestchian, managing partner at Chartis Research, in a release. “We also expect the trend for risk aggregation to continue down to mid-tier asset managers.”

The report also highlighted the need to consolidate risk systems and services to better manage risk in support of business objectives: 24% of firms have one system, 39% have two independent systems, and 28% have three or more.

“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,” said Dr. Laurence Wormald, chief operating officer and head of research – APT, SunGard’s asset management business. “Risk management should be fully integrated across the business to mitigate the severe consequences of reputation risk should risk assessments fail.”

Featured image via goranga/Dollar Photo Club

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