Looking through a kaleidoscope: Asset Management’s view of Integrated Risk Management
Asset Managers’ views of integrated risk management are reminiscent of a kaleidoscope--change position of the lens and you get an entirely different picture. Back offices see risk in everything from pricing sources to settlement risk; portfolio managers are concerned with market risk; compliance officers with the regulatory landscape; traders with slippage and broker limits; IT professionals with disaster recovery and software support lifecycles; senior management with reputational and operational risks. This is far from an exhaustive list but it illustrates the multitude and breadth of risks across the asset management enterprise.
These disparate risks are largely tackled on a tactical basis; however some shared themes around the impact of data workflow and management throughout their software solutions resonate across these groups. These common themes are quickly forming the basis for business re-architecting that is occurring today. I’ll paraphrase a line from The Rime of the Ancient Mariner “Water, Water everywhere and not a drop to drink.” The state of the securities business today is data, data everywhere and not a drop of information. To this end, let’s explore three enterprise risk challenges and trends:
Challenge 1: Disparate applications running across enterprises means aggregating portfolio, trading and counterparty data is virtually impossible in anything approaching real-time. This problem emerged as firms grew through acquisition or took a best of breed approach to software decisions. Approach the average $50+ Billion asset manager and you’ll find 5-6 order management systems, 3-5 EMS’ and 5 accounting systems -- effectively segregating account data by client segment and assets largely by security type. The net effect is it makes it virtually impossible to provide any aggregated view into risk exposure.
The Trend: Firms are consolidating platforms. Much of this may be under the auspices of reducing costs and vendor risk, but the net effect has been to facilitate aggregation of data into a smaller number of databases; thereby facilitating data aggregation. The vendors winning this business are those with the required functionality, but equally important a long-term technology strategy and commitment. As firms continue to rationalize infrastructure expense the commitment of Linedata Longview and Linedata Compliance to the Microsoft stack has been instrumental in expanding our footprint at many of these global institutions.
Challenge 2: The combination of growing application complexity and cost cutting has meant that institutions’ ability to support third-party technology has in many cases been compromised. The net result has been dated software releases and out of support software deployed impacting everything from required functionality for new products and services to compromised application support.
The Trend: Firms are increasingly looking towards vendor hosted solutions as a way to mitigate this risk, leverage subject matter expertise of the vendor, create a static cost structure, rationalize utilization and shift costs to the business units. Those vendors like Linedata with proven hosted solutions are finding 60%+ of new deals are choosing hosted over deployed solutions and a number of traditionally deployed clients are embracing software outsourcing.
Challenge 3: Users throughout the trade lifecycle are assaulted by an increasing amount of data and reporting demands. Traders are struggling with an explosion of liquidity sources, trading restrictions and market color; portfolio managers with an explosion in the number of accounts; the back office with new instruments and complex portfolio structures -- all while requirements for operational controls, transparency and reporting are growing. All of the “data” they need to complete their job is available to them, but aggregating that information and, more importantly, knowing what to prioritize is increasingly challenging.
The Trend: Firms are looking to simplify the desktop and workflow of their users and build in “intelligence” while maintaining access to the depth of information. Dashboards and other tools are being developed and deployed to aggregate the most salient information, enhance graphics and alerts and workflows to help users digest and quickly act on that information. Linedata has embraced Microsoft’s WCF and WPF technologies to build graphically rich, actionable and user configurable workspaces to meet these demands.
The nature of risk for both the Buy-side and Sell-side will always leave different users with different perspectives on the risks within their environment and individual users will all provide wildly disparate definitions of enterprise risk management, the enterprise approach to risk management needs to begin with a commitment to rationalizing data and data flow throughout the technology solution stack. A commitment to building the business around strong technology solutions, automated workflows and integration will ultimately foster an environment characterized by data integrity, audit and control: key ingredients of effective enterprise risk management.
Product Management and Strategy Linedata Services
US Industry Solutions Manager Microsoft