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

Abstract

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
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Structural Drivers Continue to Shape the Buy Side Agenda

2

 

Diversification and Resilience Drive Multiasset Class Investing

2

 

The Right Balance of Alpha-Beta Strategies

3

 

Risk Factor-Based Investment Approaches

3

 

Driving Smart Beta Solutions and Alternative Indices

5

 

Regulation Is Creating a Web of Uncertainty and Raising Cost

6

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

7

 

Imperative to Drive Efficiency, Manage Costs, and Increase Efficacies

7

 

Raising the Bar Towards a Total Risk Governance Model

7

 

Reinforcing a Clear Segregation of Duties

9

 

Risk Factor-Based Approaches

10

 

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

13

 

Requiring Risk Alignment, Capital Efficiency, and Operational Leanness

14

Exploring Vendor Dynamics and Solutions

17

 

Enabling the Portfolio and Risk Analysis Value Chain

17

 

Overall Vendor Positioning

17

Global Technology Spending Priorities

20

Looking Forward: Navigating Perfect Conditions and Perfect Storms

22

Leveraging Celent’s Expertise

23

 

Support for Financial Institutions

23

 

Support for Vendors

23

Related Celent Research

24

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