Faced with ever more demanding investor and regulatory expectations, asset managers are increasingly entrusting their risk function to specialist risk management service providers.
Risk management is a complex domain of expertise. Delivering the timely, high-quality results allocators want takes a proven infrastructure, along with dedicated risk and technology skillsets. Developing that kind of institutional-grade risk management and reporting capability in-house demands experience, knowledge and investment resources that a lot of investment management firms simply don’t have.
Partnership benefits
Partnering with a managed solution provider offers multiple benefits. Using a third party alleviates the pain and cost of implementing and maintaining a fit-for-purpose risk analysis and reporting set-up. They bring extensive modelling expertise and have the focus to keep up with the latest developments. They already possess a proven risk infrastructure and have the data to populate it. And can deliver a rich array of advanced risk and performance analytics.
In theory.
With the risk function assuming an ever more central role in asset management, firms have no margin for error. Efficiency and quality risk outputs are essential – but not all providers can deliver the service capabilities you need.
4-sight: what to look for in a third-party risk management provider
Conducting a rigorous due diligence of prospective risk management service providers can save you a lot of pain down the line. Areas to scrutinise include:
1. Expertise
Proven quant risk expertise is vital. The provider needs a strong risk background, and to demonstrate it has delivered results at scale. Risk experience should be accompanied by in-depth knowledge of the industry’s consultants, investors and their demands, to ensure the provider understands the best standard requirements and how to meet them.
2. Technology
A sophisticated technology platform able to process huge amounts of data is another must-have. Employing open architecture connectivity allows the platform to establish links and take in data from any relevant third-party sources – something most portfolio management systems struggle to do.
The infrastructure needs to be flexible and highly scalable: able to plug in new data sources, adapt to new regulations and their reporting requirements, and add or remove funds quickly to meet users’ evolving structures and demands. Output flexibility, to ensure the platform can customise reports to end-users’ specifications, is similarly crucial.
3. Client service
One of the advantages of a managed solution is that the software and service are embedded together. That frees investment managers from the trouble and expense of dealing with a risk system vendor. But because the end-to-end risk capability is integrated, it is imperative the managed service provider has the focus and scale to look after every client, and can give them high-quality, responsive support.
4. Cost
Poor risk capabilities bring their own costs – in the allocations an asset manager fails to attract, in the sub-standard investment decisions it takes, in the inferior risk reporting investors receive, in the compliance lapses that slip through, and the fines and reputational damage that ensue.
Of course, the headline service expense matters too. The appeal of a managed solution lies in the value it delivers: the ability to provide more comprehensive, better quality risk analytics and reporting at lower cost and with less hassle than managing the function in-house. A flexible cost structure – that reflects the size of the investment manager and complexity of its demands – further cements the rationale.
To learn more about the importance of providing an institutional-grade risk management capability read our latest whitepaper: The True Cost of Risk for Asset Managers.
Related Content
/Content%20illustrations/Video_blue06.jpg)
The 5 must-have capabilities for managing the risk function in-house
So you know you need a robust, institutional-grade risk management capability to attract investor allocations and meet clients’ ongoing demands. But what does a fit-for-purpose risk management and reporting function entail in practice?
/Content%20illustrations/Blog_blue03.jpg)
The cost of meeting asset allocators’ risk management expectations
Implementing a fit-for-purpose risk management and reporting function is expensive. But for asset managers, the cost of sub-standard risk capabilities is even higher.
Related content
26 May 2022 | Blog
4 top trends driving the ESG reporting agenda in 2022

6 May 2022 | Blog
SFDR Article 6, 8 and 9 products explained. What do the classifications mean?

19 Apr 2022 | Blog
Why investment reporting needs to change
Across the investment management spectrum, the need for a radically different approach to investment reporting has never been greater.
In this shifting landscape, implementing a data-driven, agile approach to investment reporting can help asset and wealth managers get back ahead of the game.

15 Apr 2022 | Webinar
Risk management: What do allocators expect?

29 Mar 2022 | Blog
The best practices in investment risk management you need to follow in 2022
For risk management, the ability to demonstrate extensive expertise alongside a deep understanding of the investment side of the business is crucial. But what best practices do firms need to follow to achieve an institutional-level standard of risk management?

23 Mar 2022 | Whitepaper
Risk management: What do allocators expect?
An in-depth guide to risk management featuring insights from asset management and due diligence professionals.

10 Mar 2022 | Blog
Why cloud solutions are the future of performance and risk analytics

11 Jan 2022 | Blog
The cost of meeting allocators' risk management expectations for asset managers
Implementing a fit-for-purpose risk management and reporting function is expensive. But for asset managers, the cost of sub-standard risk capabilities is even higher.

16 Dec 2021 | Case Study
Landytech Helps Hedge Fund Achieve Substantial Cost Savings
After a recommendation from a market peer, a UK-based multi-strategy hedge fund approached Landytech for a managed solution that would provide expert risk management support, as establishing and maintaining this function inhouse would come at significant cost. Read the full case study here.

15 Dec 2021 | Blog
The 5 must-have capabilities for managing the risk function in-house
So you know you need a robust, institutional-grade risk management capability to attract investor allocations and meet clients’ ongoing demands. But what does a fit-for-purpose risk management and reporting function entail in practice?

7 Dec 2021 | Blog
4 things asset managers should look for in a risk management provider
Faced with demanding investor and regulatory expectations, asset managers are increasingly turning to third-party risk management providers.

24 Nov 2021 | Case Study
Equity Manager Transforms Risk Management and Institutional Client Reporting Process with Sesame
Skerryvore Asset Management needed a sophisticated risk management and data analysis platform to meet the exacting due diligence requirements of institutional investors and so help grow its business. Read the full case study here.

18 Nov 2021 | Whitepaper
The True Cost of Risk for Asset Managers
Comprehensive risk management capabilities are an integral and growing ingredient in asset manager success. Since the 2008 financial crisis, the value a strong risk management infrastructure and team bring has moved to the fore. Download our whitepaper examining the true cost of risk for asset managers.
