October 25, 2018

A Pain in the Risk System Vendor Ask

 Recently, Aite Group turned to 29 buy-side risk managers to find out what features are most important to them when selecting a risk management system and why.

In a guest post from Audrey Blater at Aite, she explains the thinking behind their research report on risk systems for the buy-side. The OTC Space welcomes well written and insightful articles which are of practical benefit to our readers. If you have something you think might be suitable, please contact us. No charges apply, quality and relevance is what matters.


The concept of risk management and the systems that are built around understanding market, credit, operational, regulatory, and other types of risk have evolved over the years. As the buy-side continues to address risks that are inherent to a variety of investment styles, instruments, and portfolio types, challenges arise when seeking a one-size-fits-all risk solution. The reality is that many risk managers still prefer traditional best-of-breed systems. Recently, Aite Group turned to 29 buy-side risk managers to find out what features are most important to them when selecting a risk management system and why.

In our latest report, Buy-side Priorities in Risk Management Technology: Through the Looking Glass, Aite Group explores the evolving role of risk management. Once viewed as a dusty but necessary existence sequestered away on a desolate floor, the risk manager’s job has shifted to a much more integrated position linking the front- and middle-office processes from a risk standpoint. Keeping up with regulatory requirements and changing business needs has elevated risk managers and has concurrently pushed risk system vendors to rethink their technology stack, deployment choice, and new technologies.

As a result, managers are tasked with sourcing the most efficient solutions across the various areas of risk and regulatory needs. Needless to say, there are a lot of boxes risk managers must check when selecting the optimal risk system or a patchwork of best-of-breeds. These stem from not only the current technological and regulatory environment, but also from challenges with risk system features as described below. 


Figure 1: Respondent Pain Points Source: Aite Group 

How did we get here?

Fierce competition in the asset management world has led to investment in greatly diversified portfolios designed to hunt for yield and generate alpha. As a result, the range of assets now held has grown in number as well as complexity. The days of plain vanilla portfolios are (mostly) long gone. Today’s portfolio managers are invested in far more fixed income assets, exotic derivatives and alternative asset classes than before – shaping the need for greater breadth in terms of a risk system. 

It’s also difficult to ignore the demands of regulations in recent years. The revised Markets in Financial Instruments Directive (MiFID II), Solvency II, U.S. Securities and Exchange Commission (SEC) modernization rules, and many other regulations have taken the risk management game to the next level. Risk systems need to respond to day-to-day demands from internal and external clients as well as meet more stringent requirements. The importance of risk management has elevated the status of risk teams within some firms to key decision-maker status in allocation choices and risk budgeting.

And then there is data… As they say, with great (computing) power comes great responsibility. Data management needs are top-of-mind for risk managers seeking to perform a variety of risk metric calculations and stress tests. This is particularly important given the overwhelming amount of data-intensive regulatory monitoring and reporting. The provision of market data services which aggregate, clean, enrich, and match data, are key differentiators of today’s risk systems. 
Simply put, finding the risk solution that has the “right” instrument coverage, can adeptly address regulatory needs and wrangle swaths of data in the process is a pain in the vendor risk system ask. 

Access Buy-side Priorities in Risk Management Technology: Through the Looking Glass by clicking the link. Charges may apply.

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