Documente Academic
Documente Profesional
Documente Cultură
Independent research by
March 2015
About Chartis
Chartis is the leading provider of research and analysis covering the global market for risk
management technology. Our goal is to support enterprises seeking to optimize business performance
through better risk management, corporate governance and compliance. We help clients make
informed technology and business decisions by providing in-depth analysis and actionable advice on
the broad spectrum of risk and compliance technology offerings. Areas of expertise include:
Credit risk
Operational risk and governance, risk and compliance (GRC)
Market risk
Asset and liability management (ALM) and liquidity risk
Energy and commodity trading risk
Financial crime including trader surveillance, anti-fraud and anti-money laundering
Insurance risk
Regulatory requirements including Basel 2, Basel 3, Dodd-Frank, EMIR and Solvency II
Chartis is solely focused on risk and compliance technology giving it significant advantage over
generic market analysts.
Chartis has brought together a leading team of analysts and advisors from the risk management and
financial services industries. This team has hands-on experience of implementing and developing risk
management systems and programs for Fortune 500 companies and leading consulting houses.
Chartis Research is authorized and regulated in the United Kingdom by the Financial Conduct
Authority (FCA) to provide investment advice.
SunGards APT
SunGards APT provides award-winning investment technology for multi-asset class risk management,
analytics and risk reporting, serving buy-side institutions globally. APT models market risk, liquidity
risk, and counterparty risk across both liquid and illiquid asset classes, supporting regulatory reporting,
portfolio optimization and performance analysis. The solution can be delivered as an installed or cloudhosted offering, with a managed service component for clients who wish to outsource risk-based business
processes. APTs customers include institutional asset managers, pension funds, hedge funds, private
banks, wealth managers and sovereign wealth funds.
Table of contents
1- Executive summary............................................................................................................................. 6
2- Survey demographics.......................................................................................................................... 8
3- Key findings......................................................................................................................................... 9
4- Chartis viewpoint............................................................................................................................... 20
5- Appendix A Survey demographics................................................................................................. 26
6- How to use research and services from Chartis................................................................................. 29
7- Further reading.................................................................................................................................. 31
1- Executive summary
Responsive risk management is especially important at the moment. The financial markets are
encountering new frontiers that have both positive investment opportunities as well as displaying
volatile, non-intuitive behavior. Central Banks and regulators are very proactive which is leading to
intended and unintended consequences. This report will focus on the buy-side impact of these trends
and what they mean for buy-side risk management.
The Key Trends in Buy-side Risk Management 2015 survey from Chartis, sponsored by SunGard,
found that 89% of respondents view risk management as an integral and crucial component of
investment strategy. However, a large disparity exists between participants understanding the
importance of risk and the reality of day-to-day execution within their firms.
The top three areas of concern and where firms would benefit most if improved were:
Better transparency and interactivity of risk analytics for portfolio managers (90%)
Data management continues to gain in importance. The following were rated as crucial:
Majority of small and medium sized asset managers saw as minor or irrelevant
Tier 1 asset managers saw the structural changes as being important and significant
Operational risk and operations practices (79%)
Trading and pricing issues (73%)
Counterparty concentration risk (72%)
Collateral availability (72%)
Compliance
Compliance was only a concern for half of the respondents almost half said it wasnt
relevant or would only have a minor impact.
2- Survey demographics
The Key Trends in Buy-side Risk Management 2015 report from Chartis has been compiled based on a
survey of 196 respondents from 32 different countries across the key regions of Europe, Middle-East
and Africa (EMEA, 45%); the Americas (38%); and Asia-Pacific (17%).
The research was carried out in January and February 2015. It was sourced via a mixture of faceto-face interviews, online and in-depth phone conversations. CEOs, CFOs, CROs and other C-level
executives comprised 33% of the 196 sample size, with portfolio managers constituting the next
largest segment at 27%. Firms typically had fewer than 5,000 employees (79%) and a selection
of wealth managers (19%); private banks (16%); hedge (13%) and pension funds (12%) were
interviewed, alongside institutional asset managers (48%).
A wide-range of Assets under Management (AuM) was evident in the survey sample with 30% of
firms in EMEA stating more than $100bn, while this was 13% in the Americas and 17% in AsiaPacific. The majority of respondents fell into the $1bn to $10bn range.
The most popular investment strategy being pursued was equities (75%) but most respondents had
multi-asset strategies so other results included fixed income (67%); active managed products (34%);
OTC derivatives (20%); private equity (19%), etc.
See the Surveys demographics tables in Appendix A.
3- Key findings
3.1. The risk function: the view from the buy-side
Figure 1: The role of risk management
An integral and critical component of
investment strategy
60%
29%
33%
57%
32%
10%
29%
39%
24%
32%
11%
44%
10%
26%
20%
30%
56%
40%
investment strategies
50%
60%
70%
80%
90%
100%
The function of buy-side risk management is seen as an integral and critical component of investment
strategy by 89% of asset managers, fund managers and other buy-side respondents. However, 90%
also saw risk as an individually driven aspect of portfolio management with each investment strategy
driven by the person in charge. There is necessarily some overlap in the above findings as survey
respondents shared what they saw as the company view and their own view.
Risk analytics is seen as a way to assess market opportunities and simulation tools as a way to stress
test scenarios and investment ideas. Middle office risk measurement reporting is essential because of
increasing regulation and client demands. But as figure 1 shows a majority of respondents said this
reporting-driven viewpoint did not accurately describe the role of risk management.
A buy-side market participants risk procedures and technology tools must contribute to a firms
policies, strategy, compliance, clearing and operate as an investment decision-making aid. It is no
longer acceptable to view buy-side risk management as a siloed middle office function or tick-box
exercise.
50%
Multi-asset-class
risk analytics
49%
40%
38%
Integrating disparate
risk systems
30%
Reducing costs
29%
High priority
40%
30%
21%
47%
13%
36%
26%
35%
35%
44%
25%
10%
10%
27%
39%
20%
30%
40%
Medium priority
50%
36%
60%
70%
80%
90%
100%
Low priority
The difficulty in generating investment returns in a low interest rate environment has triggered a
search for yield that requires a larger multi-asset capability on the buy-side. This can be seen in
the demand for more interactive risk analytics technology to help portfolio managers, with 50% of
respondents identifying this as a high priority. Similarly, 49% think such analytics must be crossasset enabled and 40% want improved granularity. In an era of increased volatility the buy-side must
have the tools to actively seek out returns, especially tier 1 players with $100bn+ of assets under
management (AuM).
10
Tier 2 or 3 buy-side firms with under $10bn AuM or between $10bn-100bn AuM, may still seek out
multi-asset technology in the search for yield and improved investment performance but they are more
likely to do so under a Software-as-a-Service (SaaS) scalable cloud-based implementation approach
targeting granularity and transparency as immediate aims. This also helps them meet US Dodd-Frank
and European EMIR rules and reporting requirements.
In interviews it was mentioned that next day batch reporting risk management systems were not
or soon would not be acceptable to support a risk-aware culture, investment performance and the
management of credit, collateral and liquidity management.
Reducing costs is seen as a high priority by only 29% of survey respondents, suggesting that it isnt
as important as on-demand risk reporting and asset class coverage, which require investment in new
technology. It is notable that Asia is the keenest to increase expenditure (64%) while Europe is keener
to keep expenditure the same or decrease (62%).
Most survey respondents operate in a multi-vendor environment. When questioned about the number
of independent risk systems they have, only 24% said they have a single system; 39% have two
independent systems; and 28% have 3 or more technology systems. These are mainly legacy issues
based on asset-specific siloed risk systems, mergers and acquisition activities; the use of many interim
reconciliation and tactical aggregation hubs, failed enterprise architectural initiatives and entropy.
How many independent risk systems does your firm support?
None
24%
One
39%
Two
Three
14%
Four or more
14%
0%
5%
10%
15%
20%
25%
30%
35%
40%
11
27%
Structured products
24%
18%
Fixed income
16%
9%
FX overlay
9%
14%
26%
17%
20%
28%
30%
7%
24%
39%
20%
40%
5%
39%
13%
7%
10%
23%
9%
29%
Important challenge
9%
8%
31%
30%
20%
37%
31%
23%
10%
32%
3%
26%
17%
11%
23%
22%
30%
16%
4%
5%
43%
26%
7%
Index products 4%
11%
28%
11%
Commodities
16%
28%
12%
Equities
Global Macro
30%
31%
59%
50%
Minor challenge
60%
70%
No real challenge
80%
90%
100%
Not relevant
Fixed income is still rated as a significant or important concern by 59% of survey respondents because
of the drying up of liquidity, the need for transparency and independent pricing as well as greater
risk awareness. Being able to validate or understand a Bloomberg or brokers price was described as
important.
Over-the-counter (OTC) derivatives are seen as significant or important as the mandatory market
structure changes come into play region by region with the US leading and Europe following closely.
Alternative investments, such as venture capital, private equity, property and infrastructure are
significant or important say 46% of respondents with many commenting that they constitute the
most significant challenge from a modeling perspective. They are increasingly popular in the search
for yield and investment performance, especially as deflation stalks the Eurozone and emerging
economies. Some buy-side firms have entered the commercial lending business as the banks have
retreated. In the survey equities and indices constitute the least challenging asset classes. But
some interviews suggest that indices and ETFs might present more risk management and analytic
challenges.
12
43%
50%
35%
53%
34%
25%
55%
25%
52%
17%
14%
0%
10%
20%
Critical
30%
5%
10%
4%
12%
8%
14%
9%
50%
27%
6%
54%
24%
8%
40%
Important
2%
13%
57%
Hedge analytics
10%
48%
29%
Index analytics
5% 2%
50%
60%
Not important
70%
80%
90%
100%
Don't know
Multi-asset coverage is a critical and important attribute of portfolio analytics for 93% of respondents
and for 87% to augment performance analytics. The importance of integrating risk management with
performance management is reinforced by 81% valuing common data coverage for rates, curves,
surfaces etc. This also reinforces the previously mentioned significance of data management.
Figure 6: The priority of different types of risk models
78%
Market risk
62%
Liquidity risk
Performance attribution
44%
Stress testing
41%
24%
Market impact
22%
10%
10%
42%
14%
44%
15%
52%
16%
53%
23%
58%
20%
High priority
3%
41%
32%
Counterparty risk
1%
35%
49%
Credit risk
0%
21%
30%
40%
50%
Medium priority
20%
60%
70%
80%
90%
100%
Low priority
13
Large, medium and small companies similarly expressed the importance of market (78%) and
liquidity (62%) risk. Improving market risk analytics availability, sophistication and transparency
was a common theme in interviews but what was most surprising was the increased focus on liquidity
risk for more than just redemption forecasting. It is also being used to reduce recently enlarged credit
lines and mitigate bond illiquidity. Liquidity Risk is regarded as a high priority by a larger number of
respondents in Europe (72%), UK (68%) and Asia (63%) compared to the N. Americas (54%). Tier 1
firms talked of making extensive use of sell-side credit and liquidity simulation tools.
Stress testing is a high priority for more respondents in Asia (44%) than those in the US (31%) and
UK (21%).
14%
13%
Credit curves
12%
32%
46%
41%
Significant challenge
11%
30%
11%
40%
42%
29%
30%
Important challenge
13%
21%
24%
25%
20%
30%
37%
42%
10%
30%
35%
30%
0%
24%
34%
13%
46%
8%
9%
51%
11%
44%
40%
50%
Minor challenge
11%
42%
60%
70%
80%
90%
Not relevant
14
100%
Data is central to an effective buy-side risk management strategy. Data quality (91%), coverage
(81%) and risk data aggregation (87%) stand out as the most important requirements highlighted by
respondents.
What would be the best estimate of FTE (full time equivalent)
utilization in the following operational/support activities?
30%
29%
26%
26%
IT support
26%
24%
24%
0%
<1 person
10%
48%
8% 5%
55%
12% 3%
52%
14%
59%
7%
63%
22%
46%
13%
13%
17%
61%
30%
1-5 people
40%
50%
60%
5-10 people
8%
6% 5%
39%
20%
5%
10% 5%
70%
80%
90%
100%
>10 people
Unsurprisingly IT and Operations staff form the largest group of staff full time equivalents (FTEs)
in our job function graph. The fastest growing group of staff are involved with data management and
reconciliation to support portfolio investment, risk and regulatory reporting related activities. Their
roles often overlap into each others departments and functions.
15
Figure 9: Which regulations (and self-regulatory initiatives) are likely to have the most effect?
23%
UCITS
27%
24%
26%
Dodd-Frank
20%
28%
24%
28%
AIFMD
20%
26%
24%
30%
29%
27%
MiFID
18%
EMIR
16%
Solvency II
11%
REMIT 4%
24%
26%
20%
10%
Significant impact
34%
30%
14%
39%
34%
OPERA 1% 16%
0%
26%
48%
37%
20%
30%
Important
40%
46%
50%
60%
70%
Minor impact
80%
90%
100%
Not relevant
Received wisdom is that regulation and compliance are highly challenging and important, however,
the survey does not reflect this. Only 50% of respondents described UCITS as significant or
important. The majority of respondents said Dodd-Frank, AIFMD, MiFID and EMIR were now
having a minor impact or less. It is the sell-side that is getting the focus of regulatory attention and has
the more onerous burden.
Similarly, the operational risk and operations practices of the mandatory OTC derivatives clearing and
related market structure changes (see figure 10) were only of concern to half of the respondents; with
most viewing it as primarily a sell-side issue for now.
Also evident was a touch of hype fatigue after 2014s deluge of warnings to be ready for the market
structure changes when much is still to be defined and regional conflicts are still to be resolved.
Only 20% of the buy side respondents use OTC derivatives. The majority use exchange traded
derivatives (ETDs) for exposure management, yield, hedging and conviction.
16
Figure 10: The impact of OTC derivatives clearing and related market structure reform
47%
30%
3%
21%
44%
Tier 2
43%
Tier 3
23%
Tier 3
30%
24%
33%
14%
11%
30%
22%
8%
11%
35%
10%
20%
Important
40%
9%
18%
29%
12%
24%
9%
30%
12%
30%
19%
38%
11%
30%
26%
32%
55%
24%
32%
50%
Minor impact
9%
22%
9%
42%
18%
27%
63%
Tier 2
9%
25%
9%
38%
19%
32%
64%
33%
25%
19%
14%
9%
24%
9%
8%
28%
13%
31%
41%
9%
27%
13%
14%
Significant impact
16%
63%
Tier 3
0%
19%
36%
24%
Tier 3
27%
28%
14%
30%
Tier 2
10%
24%
28%
27%
Tier 2
Tier 3
26%
66%
Tier 3
31%
41%
11%
3%
9%
38%
6%
46%
22%
9%
39%
58%
Tier 2
41%
30%
9%
Tier 3
3%
60%
26%
70%
80%
90%
100%
Not relevant
17
However, tier 1 asset managers and large hedge funds have a different view of the new OTC
derivatives clearing and market structure changes from the small and medium sized asset managers
who see these as minor or irrelevant.
Tier 1 asset managers saw the structural changes as being important and significant from several
perspectives:
None
24%
One
39%
Two
Three
14%
Four or more
14%
0%
5%
10%
15%
20%
25%
30%
35%
40%
18
67% of survey respondents have two or more independent IT risk systems installed at their firm. This
suggests that there is still considerable room for implementing single integrated solutions at buy-side
firms or an on-going silo technology issue that is only overcome by various standalone linking and
connectivity patches.
In regard to how risk systems are organized asset class is still the predominant category (39%)
which explains the earlier mentioned need for multi-asset functionality to both get rid of the risk
management silo effects and enable easier risk aggregation. Low distribution by risk measures (24%),
department (13%) and risk category (11%) make movement to a single platform a low project risk
(see figure 12).
are the risk systems
organized and categorized?
Figure 12: The How
organization
and categorization
of risk systems
39%
By asset class
24%
By risk measure
13%
11%
Risk category
9%
2%
Regulatory jurisdiction
2%
0%
5%
10%
15%
20%
25%
30%
35%
40%
19
4- Chartis viewpoint
The results of the survey and qualitative interviews show that the role and function of risk
management is changing. The emphasis is shifting away from a middle office regulatory obligation
or periodic client reporting towards a more dynamic, intraday, cross asset, investment supporting
function closely observed by regulators. There is a more challenging, volatile and non-intuitive
politico-economic-legal environment to perform within.
The aspiration to an integrated, enterprise-wide approach has been hampered over the last few years
by license to operate issues to implement Dodd-Frank, EMIR, AIFMD, MiFID etc. rules and
worrying about new market structures without much budget or resource left over.
Now there has been added highly unusual politico-economic conditions, disruptive changes in market
competitiveness, new business models and continuing IT innovation.
20
21
On demand is now the minimum aspired performance level for a buy-side integrated risk
management platform. Most of the buy-side respondents surveyed and interviewed for this report that
do not have this now want to move to this level of responsiveness within the next few years.
On-demand performance can still result in a daily or weekly report being produced, depending on
the investment style, economic environment events and cost sensitivity considerations of the firm.
Risk management software vendors focused on SaaS or managed services factor these options into
their commercial propositions.
Multiple asset classes: As riskier investment strategies are pursued trickier instruments are used.
Firms need greater asset class coverage and more diversity of instruments within asset class. There
is now a greater use or aspired use of alternative investments, property, infrastructure or commercial
lending, requiring synthetic instruments and integrated sub-systems to model and measure complex
waterfall and optional structures.
More buy-side companies, and not just the more innovative hedge funds and exotic boutiques, are
filling in the gaps left over by the sell-side retreat from their traditional investment and financing
activities. These additional investment strategies require new hires, additional technology and process
changes as well as additional risk measures. Interestingly most of the new people, process and
technology are coming from the sell-side. This was particularly noticeable when talking to Middle
East respondents who were making sell-side hires as well as increasing lending and infrastructure
portfolios. The recent energy price downturns were encouraging more predictive modeling but this
was being reluctantly resourced externally.
22
Risk data aggregation: It is easier, but less flexible, for the majority of the buy-side to aggregate risk
measures using an integrated one-stop-shop multi-asset platform whether as on-premise software
(in-house or vendor sourced), SaaS or managed service. An alternative is to aggregate normalized
sensitivities-based, profit and loss (P&L) vectors from different source sub-systems to an independent
data aggregation engine. This often requires a disproportionate investment of costs and resource.
However, large and upper-middle sized sell-side companies, large hedge funds and institutional asset
managers have the size and economies-of-scale to absorb these implementation, technology and
maintenance costs.
Multiple risk measures and metrics: If a buy-side firm pursues new investment strategies, new asset
classes and new instruments in existing asset classes it will need additional metrics and measurement
procedures. Many of these are delivered by specialist, external agencies, new software packages and
internally developed sub-systems often written in high level languages like Mathlab, Python and R or
Excel. These all need a resilient risk platform architecture to ensure operational integrity, otherwise
there will be more regret than reward.
23
24
25
15%
15%
47%
38%
APAC
AMERICAS
Regional
EMEA response
AMERICAS(%)
EMEA
38%
APAC
47%
15%
47%
38%
APAC
APAC
AMERICAS
AMERICAS
EMEA
EMEA
EMEA
EMEA
AMERICAS
APAC
AMERICAS
APAC
26
3%
12%
Hedge fund
13%
Private bank
16%
Wealth management
19%
48%
0%
10%
20%
30%
40%
50%
40%
30%
30%
41%
29%
29%
24%
21%
20%
17%
9%
10%
15%
14%
13%
9%
7%
3%
0%
$50bn to $100bn
AMERICAS
$10bn to $50bn
EMEA
$1bn to $10bn
APAC
27
2%
4%
CFO
6%
Other
COO
7%
CIO
7%
13%
CRO
27%
Portfolio Manager
Treasury/ALM
3%
6%
Business Line
9%
11%
Credit Risk
17%
Operational Risk
22%
Market Risk
0%
5%
10%
15%
20%
25%
30%
75%
Fixed Income
67%
34%
Structured products
20%
OTC derivatives
20%
Index products
19%
19%
FX overlay
Global Macro
15%
Commodities
14%
18%
4%
10%
20%
30%
40%
50%
60%
70%
80%
28
29
Chartis can provide specific strategy advice for risk technology vendors and innovators, with a special
focus on growth strategy, product direction, go-to-market plans, and more. Some of our specific
offerings include:
Market analysis, including market segmentation, market demands, buyer needs, and
competitive forces
Strategy sessions focused on aligning product and company direction based upon analyst
data, research, and market intelligence
Thought leadership
Risk technology vendors can also engage Chartis to provide thought leadership on industry trends
in the form of in-person speeches and webinars, as well as custom research and thought-leadership
reports. Target audiences and objectives range from internal teams to customer and user conferences.
Some recent examples include:
Custom research and thought-leadership paper on Basel 3 and implications for risk
technology
Internal education of sales team on key regulatory and business trends and engaging
C-level decision makers
30
7- Further Reading
31