Buy Side Portfolio and Risk Management: Keeping a Sharp Eye on Risk, Returns, and Perfect Storms

by Cubillas Ding, November 29, 2013
Industry Trends
Global, EMEA, North America


Driven by changing investor priorities, sophisticated investment strategies, and sustained regulatory pressures globally, investment firms need to raise the bar on portfolio management, risk, and investment operations. Celent expects buy side portfolio and risk management software spending to grow to $1.9 billion in 2015.

In the report Buy Side Portfolio and Risk Management: Keeping a Sharp Eye on Risk, Returns, and Perfect Storms, Celent examines changes, emerging trends, and impact to portfolio and risk management practices in the context of broader shifts in investment market and business models.

The investment industry is caught up in the crossfire of something larger than itself, with complex webs of compliance and risk-centric regulations around capital, transparency, clearing, and investor protection; socioeconomic challenges around retirement trends, pensions and financial services reforms, and the shifting dynamics of wealth between developed and emerging economies. In response, investment management firms (asset owners, managers, and servicers) are implementing investment strategies that are more diversified, defensive, and “risk-transparent.” Market players are expanding multiasset class investing, balancing alpha-beta strategies, driving the application of risk factor-based investment approaches, and employing next-generation smart beta solutions.

“Beyond raising efficiencies in investment operations, firms must sharpen multiasset portfolio construction and risk optimization capabilities to accurately understand underlying drivers of risk and balance the risk and return equation for different investor segments,” says Cubillas Ding, Celent Research Director and author of the report. “The last global financial crisis was labeled as a perfect storm, for the right reasons. However, the next perfect storm could already be brewing.”

The report provides insights into portfolio and risk vendor dynamics and their impact on firms that select third party solutions. In particular, technology priorities, spending dynamics, and the evolution of vendor offerings in this space are examined. Firms covered include: Axioma, Barclays POINT, Bloomberg, DST, IBM Algorithmics, Misys Sophis, MSCI Barra, Northfield, Quantifi, Riskmetrics, S&P Capital IQ, State Street, and SunGard APT.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
Tel: +1 212 345 1366

Europe (London)
Chris Williams
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary


Structural Drivers Continue to Shape the Buy Side Agenda



Diversification and Resilience Drive Multiasset Class Investing



The Right Balance of Alpha-Beta Strategies



Risk Factor-Based Investment Approaches



Driving Smart Beta Solutions and Alternative Indices



Regulation Is Creating a Web of Uncertainty and Raising Cost


Operational Enablement in Portfolio and Risk Function Sets the Foundations to Build Change



Imperative to Drive Efficiency, Manage Costs, and Increase Efficacies



Raising the Bar Towards a Total Risk Governance Model



Reinforcing a Clear Segregation of Duties



Risk Factor-Based Approaches



Central Clearing and Collateralization Requirements Will Alter Trade Dynamics and Cost of Hedging



Requiring Risk Alignment, Capital Efficiency, and Operational Leanness


Exploring Vendor Dynamics and Solutions



Enabling the Portfolio and Risk Analysis Value Chain



Overall Vendor Positioning


Global Technology Spending Priorities


Looking Forward: Navigating Perfect Conditions and Perfect Storms


Leveraging Celent’s Expertise



Support for Financial Institutions



Support for Vendors


Related Celent Research


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