Risk Management: What's Happening Now?
June 15, 2009
As the financial crisis continues to drive cost-cutting in securities technology, risk management is one of the notable exceptions. With a renewed focus on all kinds of risk exposure, IT executives at securities firms are listing risk management as a top priority for their firms. In a report on the "Top 10 Securities and Investment Trends for 2009" released earlier this year by Boston-based research firm Aite Group, technology executives at 21 capital markets firms ranked risk management as their top technology priority in conjunction with reducing cost (chart).
"Risk management is about to become the most prolific marketing term in capital markets technology," the report said. "Risk management rules the roost."
And in fact, risk management is a high profile topic at the upcoming technology conference, sponsored by the Securities Industry and Financial Markets Association, that will be held June 23 to 25 in New York. Don DeLoach, president and CEO of Chicago-based complex event processing technology (CEP) provider Aleri, and a June 25 presenter at the conference, says that monitoring and managing risk across the enterprise has become a top priority for financial services firms. "If you look at the lead-up to last fall, there were risk systems in place," says DeLoach. "But at a lot of firms, risk management was being done in isolation." Now, he says, firms are looking to take a holistic view. "Firms need to link silos together to monitor and manage risk," he says. "To the extent that I can employ technology to bridge the gaps [in risk management], that is worth an incredible amount to the firm."
DeLoach also says that managing risk in real time has become an imperative: "A year ago, managing exposure and limits in real time was seen as a 'nice-to-have.' Today, firms are moving quickly to implement real-time risk management systems."
Denise Valentine, senior analyst specializing in securities and investments at Aite, says that another effect of the credit crisis is that firms are taking a fresh look at how they use risk management systems. "Some core assumptions proved wrong," she says. "Risk managers are realizing that they need a toolkit, and it needs to be reviewed all the time. You can't depend on some time-honored method--it is an iterative process," she says.
Growing sense of urgency
Risk analytics--the ability to view and analyze many different aspects of risk--is thus taking on a new urgency. According to a separate study from Aite Group, "Risk is Not Just a Four-Letter Word," the market for buy-side risk analytics is expected to grow from $1.3 billion in 2008 to $1.8 billion by 2013. The report, which focuses on buy-side multi-asset-class risk analytics, says that volatility in all asset classes has shown a "pressing need" for comprehensive risk analytics, meaning broad coverage of different asset classes, plus the ability to use VAR techniques (value at risk), measure sensitivities and exposures, and be able to stress test. "A lack thereof may lead to massive client withdrawals or even to the closings of buy-side businesses altogether," says report author and senior Aite Group analyst John Jay, who explained in an interview that one example might be too much concentration in a particular credit.
