Introduction

The conditions for global trading markets over the last year can only be described as unprecedented – unprecedented volumes, volatility, quantitative easing, retail participation, uncertainty, and more.

The pandemic, a tense U.S. election, and the emergence of “meme stocks” brought a whole host of new challenges for global money managers. These developments have added to the headwinds already faced by the asset management industry, and combined, they have put immense pressure on the operations, technology systems, and financials of money managers globally.

For asset managers, life is unlikely to return to “normal” even as vaccines help to temper the pandemic – the industry must continue to account for disruptions that began long before the COVID-19 pandemic. Passive trading strategies continue to compress fees and margins. Market electronification ushered a technological arms race that puts a premium on speed and agility. The search for yield is still evasive, while regulators are forcing asset managers into ever-more stringent compliance regimes.

To meet the fast-changing demands of a trading environment and industry at the cusp of transformation, buy-side firms are increasingly turning to external technology partners to ensure their operations can scale and that their teams have the resources and time to focus on investment insights.

 

With disruption comes opportunity – so long as the infrastructure is there to take advantage of it.

Other firms are reassessing and upgrading risk management infrastructure. In recent years, banks, asset managers, and corporations have taken a broad range of approaches to credit risk management, with the various focal points depending on the individual firm’s priorities, which creates discrepancies in the ways risk profiles are determined, terms or credit exposure given or taken, and credit risks quantified and managed.

Lessons learnt from the global financial crisis have come in the form of more detailed regulatory guidance and the ever-increasing need for rigorous analytics and data, both of which aim to provide more stable safeguards as well as help firms negotiate the significant post-financial-crisis market changes, such as higher volatility, less predictable economic cycles, and political and trade frictions. Banks have also benefitted from additional capital buffers, increased methodology and data consistency across business units, and the strengthening of risk management infrastructure and governance. Although markets are much better equipped to deal with unknowns in 2021 than in 2008, such measures may not be sufficient.

Upgrading risk management systems should improve available analytics and may even reduce costs. For this reason, a number of asset managers, seeking to protect 2020’s hard-earned alpha, and answerable to increasingly engaged investors, are actively acquiring and implementing analytics and data sets that enable them to explain risk-adjusted performance, understand risk scenarios, and prepare for them

Corporations, though relatively recent entrants to the credit risk conversation, are also seeking to identify, assess, monitor, and control their business credit risks. Concerns among corporates include supply chain risk and business risk, knowing which customers may become delinquent and which banks to choose as trading and hedging partners.

In this guide, we explore these and other key trends expected to top the risk function agenda in the second half of 2021.

Continue to the next chapter >>

 

The search for yield is still evasive, while regulators are forcing asset managers into ever-more stringent compliance regimes.