Buy-side institutions have typically been characterized as slower to automate their risk management processes. But money management firms are beginning to open their eyes to the world of vendor-supplied risk management solutions in the not too distant wake of costly events such as the bailout of Long Term Capital Management. According to a recent report by the TowerGroup, overall spending on risk management solutions is expected to grow 16% over the next five years. The buy-side may have been slower to begin the process, but all indications point to a marked increase in system implementations and vendor offerings.
"Institutional investors have identified a growing need to have risk management information so they can provide objective and consistent risk and risk adjusted performance evaluation across portfolios, asset classes, style sectors, currencies and so forth," says Eric Riechenberg, managing director at Askari, a business unit of State Street Corporation.
As previously reported, Askari is releasing a new risk management product - RiskBook X -- targeted at both the buy and sell-side, as well as an application service specifically designed for investment managers, plan sponsors and public funds. (BSTW, 10/25)
Also on the horizon is a new enterprise risk service bureau from BARRA. The off-site option will run off its TotalRisk for Asset Management system. The TotalRisk product is an integrated risk management solution for asset managers, pension fund managers and custody banks. It covers credit and market risk, benchmark reporting and data integration, which can be out-sourced through the service bureau.
Thomson Financial Software Solutions already has plans to release an upgraded version of its PeraScope performance measurement and attribution software in the second half of next year. Currently called NextGen PeraScope, the product will be a Java based, Web browser, XML product for security level performance.
"All of our research says that thisrisk management products is really catching on," says Michael Slemmer, general manager for investment management solutions, the Americas, at Thomson Financial. "Of approximately the 50 of Thomson's largest customers we surveyed, 83% said they were interested in the newest version of PeraScope. That statistic says that people are aware of the growing need for this, the market should be expanding in the next few years."
Although the name and details on the NextGen PeraScope have not been finalized, Slemmer says, "it will give the user the flexibility to roll up their securities any way they want to, to look at performance or attribution. You may have a manager for instance that is more concerned about looking at performance rolled into sectors or industries or analyst." The NextGen product will also have multi-currency performance and attribution.
Infinity, a division of SunGard Data Services, is also hoping to cash in on the trend, positioning its sell-side risk management system, Panorama, by including benchmarking functionality to attract more corporate and fund managers and asset management firms. The portfolio benchmarking will allow asset managers to track relative performance of portfolios by benchmarking to a portfolio of benchmark instruments, says Brian Robins, senior vice president of marketing at SunGard. Robins adds that buy-side clients have been increasing over the last 18 months and now stand at about 10 for its flagship Panorama risk management product.