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Risk Management

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Risk Management Vendors Look Beyond the Millennium

If you thought preparing for Year 2000 kept you busy, take a look at what risk management vendors have on their plate this year.

As part of the move toward easier integration and manipulation of data, many risk vendors are rolling out graphical user interfaces to make it easier to pull data from different locations. Using a GUI also enables people in all areas of the firm to create risk reports in a simple manner and without having to call anyone to have the report prepared. Askari's product uses a GUI, and Reichenberg touts the importance of making the risk reports and information useful and available to a wide range of people. "We are using an OLAP Online Anaytics Processing tool which makes it easy to create and view reports by all departments," Reichenberg says. Axiom Software is also working on better integration of products using a GUI, says Tsigutkin.

Handling New Accounting Standards

To top it all off risk vendors are also preparing for the Financial Accounting Standards Board's standard-FASB 133-a mark-to-market accounting rule that will force public companies to publish their derivatives exposures on their balance sheets. Many risk vendors-particularly those that cater to the corporate treasury or insurance markets-are tweaking their products to provide the needed functionality to support this new standard. The Algorithmics official says he is actively working on implementing FASB 133 functionality. Axiom's Tsigutkin says his firm's FASB product will be available by March. He adds that not all risk vendors are able to deal with this issue because of the flexibility of their infrastructure. "Many systems cannot embrace various types of transactions and hedges." He adds, "the ability to link the derivatives transactions into the corporate balance sheet is something that our product will be capable of doing very soon." These standards come into effect in June (see related story, "FASB Regulation 133," page 19).

Attacking the Buyside

Another area in which risk managers are taking notice is the buy side. Many new implementations in the coming year will relate to traditional sell side risk management technology vendors augmenting their products so they can offer them to a whole new market sector. Vendors including SunGard, Netrisk.com, Axiom, BARRA, etc. are all enhancing their products to that they are more attractive to institutional investors and plan sponsors (see related story, "Risk Vendors Jump on the Buy-Side Bandwagon," page 16). These services are all using the Internet to send and receive transaction data.

On the Internet

Despite the quick transgression to the Internet in other areas of financial services, risk vendors have been a little slower to make the move. Instead of revealing full-fledged Internet strategies, many risk vendors are starting to offer risk services using the Internet as a vehicle to send and receive portfolio information and risk reports. This type of service is especially beneficial for smaller broker/dealers or buy side clients, who want to outsource risk management to minimize IT costs, risk officials say. Some vendors are taking this to the level of a service bureau that would handle everything from the back office to risk management assessment and reporting.

Two particular vendors are filling a niche in that space. BARRA rolled out its risk service bureau in September, and SunGard's Infinity Group plans to roll out a similar service next year. BARRA's offering is called BARRA's Enterprise Risk Service Bureau. The service uses BARRA Total Risk for Asset Management in conjunction with its own financial and technical consultants. The service, targeted toward asset managers pension fund managers, insurance companies and custody banks, will operate off-site at a BARRA office and provide tailored levels of accessibility to the system. It will also provide risk reporting and methods that are defined by the customer and available online or via e-mail.

SunGard's Infinity Group is working on its own service bureau, says Robins. SunGard, however, will focus first on offering back-office services and will augment the service with risk profiling. He notes that the initial step will be to allow clients "to rent" the software-otherwise known as offering "Apps on Tap," he says. Infinity and its sister company SunGard Computer Services will partner to provide the service bureau as the sub provides the 24 by 7 facilities needed for a service bureau. The user can operate its processing as if it were in house, through a browser. "It's completely transparent. It will seem to them as if the hardware and the software is on their site," Robins says. He adds, "From a bank's perspective these propositions are very attractive as they are under a lot of pressure to cut costs. All a client will need is a standard browser."

Robins notes that SunGard will also team up with a consultant in order to provide the extended risk calculations. "As a software vendor, we don't want to take on the liability that comes with providing these services," Robins explains. The vendor has not chosen a partner yet and is exploring its options. The full-fledged service bureau will be introduced toward the end of 2000.

Although Robins said he wasn't aware of other firms that had this type of risk, he pointed out that Infinity-a few years back-launched Riskview.com-a joint venture between IBM and Dow Jones Global Indices. "That product offered VaR online for equities and had 5,000 subscribers." He says that although this product no longer exists, Infinity used what it learned from this venture to create the appropriate business model for the new Web service. Robins adds that recently, SunGard rolled out an online Internet-enabled service called e-Finity, where clients can send the vendor data through the Internet to be processed.

Askari is also prepping to roll out a service called Global View by next summer. This service will provide risk and return management information to institutional investors and investment managers. Global View's technology is based on RiskBook X and allows clients to obtain reports through the Internet or obtain more indepth risk services. Because Askari is owned by StateStreet, the third largest custodian bank, it has access to the books and records of potential clients in this space. Askari's Reichenberg notes that the vendor will first go after State Street clients, but will also broaden their scope to others not affiliated with the custodian. Global View is being tested by about 10 asset mangers and institutional investors with whom the firm is partnering. BARRA's Jones says he believes these Trust Banks are in a good position to offer risk management services to the buy side-and expects to see more of them offering these services.

MKI, which earlier this year acquired C*ATS Software, will also consider a service bureau option. Finn Christensen, an MKI v.p. who runs consulting and sales support for the Americas and Asia Pacific, says MKI has set up a service bureau in Paris for Arthur Andersen, one of its clients. He says that although MKI doesn't have any concrete plans to offer a service bureau in the U.S, if clients want MKI to, it has the know-how to do so.

MKI plans to focus its energy on adding new instruments to its offering, enhancing credit risk and rolling out a new Internet strategy that targets retail investors. MKI is looking to distribute its risk products-CARMA and CATS' Global Manager and Risk Version (GMRV) to individual investors by either partnering with an online broker, bank, or other software vendors. He would say no more until its plans are finalized. Could this be the next big risk management trend kicking off in 2001? Possibly. With individual investors becoming much more savvy in conjunction with the heightened emphasis on risk, it only seems like the next logical step.

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