Buy Side Reluctant to Spend on Risk

Many respondents to a recent CarbonBased Consulting survey of 230 buy-side organizations say they are still reluctant to spend on risk management.

Despite the survey results, which show that more than half of the respondents say risk-management practices were a medium or high priority, the consultancy verbally heard otherwise. CarbonBased Consulting notes in its study that many respondents made it clear to them that, "While they must be seen to be dealing with risk management competently, especially since they are facing increasing demands for transparency, they are still very much reluctant to spend on and build in the capabilities to meet demands of institutional investors who are used to getting regular risk reports from their long-only managers."

In addition, the survey found that 35 percent of respondents say risk management was a low priority or say they did not employ sophisticated risk-management techniques. More than two-thirds of the firms that do use risk-management techniques say they use a vendor or application-service provider. The others used sell-side or home-grown solutions.

Who Controls the Buy-Side's Budget?

CarbonBased Consulting also found that there are a variety of people and groups that control a buy-side firm's spending. They include: General Partners/managers (37 percent), CFOs/Controllers (31 percent), COO/IT Managers (16 percent) and Committee (16 percent).

The survey found that at large firms exceeding $4 billion in assets under management, the CFO controls the spending while at the majority of small- to mid-sized firms, the general partners and managers are in charge.