What's Trending in Investment Risk Management?

The last decade has seen extraordinary disruption to financial services. Today, risk is more abundant and complex than it was before the financial crisis, which has required asset managers and hedge funds to develop new processes and technologies to reach better outcomes. However, a decade after the crisis, many firms are still struggling with the limitations of non-integrated legacy systems. Additionally, the regulatory landscape, pace of technology and increasing demand for holistic views of enterprise risk are some of the macro pressures affecting risk teams. As a global provider of risk management solutions, having a keen understanding of market trends and their implications for ensuring optimal portfolio management, optimization, risk assessment and regulatory compliance is critical.

Three trends you should know about:

  • Contradictory regulatory environments. European regulatory oversight and enforcement is accelerating, while the US is decelerating and, in some cases, unbundling regulations. Firms with a global footprint will have to manage these disparate compliance demands.

  • Client demand for more transparency. In an increasingly competitive environment, clients are demanding clarity regarding the drivers of risk and performance. Risk management solutions that make it easy to have risk/reward conversations with clients are at an advantage. To rise above the competition, firms are moving toward on-demand analytics based on vastly enhanced computational capability powered by cloud-based systems.

  • Cutting the bonds of legacy technology. Piece-meal legacy and point systems cobbled together over a long period of time incur significant technical debt – short term expediency was gained while sacrificing longer term solution viability – thus costing firms significantly more to manage, deploy and replace. Cloud-based systems can cut the legacy bonds and lower new system deployment. They are considerably more cost effective, secure, on-demand and easier to deploy. Incorporating advanced technologies such as AI and natural language processing is also made easier. Taken together, this is a powerful foundation to enrich portfolio construction and risk analytics.

Addressing these trends

To meet growing market expectation for near, real-time processing of market portfolio risk, firms need to move to singular platforms that integrate data and analytic operations across the Front, Middle and Back office.

Firms will need to move to a “one-firm, one-voice” risk management structure to drive enterprise-wide consistency. But, a simple tweaking of existing risk systems is not possible – firms need a fundamentally new approach to risk management.  To stay competitive, firms must implement a consistent, enterprise-wide approach that speaks to both the multi-asset class language of the middle office and the single-asset class language of the front office. They’ll also need back office reporting capabilities that satisfy the demands of increasingly sophisticated regulators and clients.

Financial analytics needs to be re-thought.  To understand and react to market swings, they need more capacity than existing data centers. A firm wide risk and compliance platform for integrated, portfolio construction and risk decisioning at maximum scale must live in the cloud. However, these systems must be designed for the cloud in order to achieve full effectiveness.

Above, we discussed the pains that non-integrated, legacy systems impose on an organization. Axioma’s integrated risk management suite meets the market need for a consistent, scalable enterprise-wide risk and compliance platform that accelerates firm-wide performance for risk and compliance. From the front, middle and back-office, Axioma’s risk management platform addresses interdependencies across technology, business, and functional needs and delivers superior investment performance and operational excellence.

Axioma’s Applied Research content delivers a closer look at the trends, innovations and shifts that affect investment management and risk assessment. Applying these insights coupled with Axioma’s enterprise-wide risk management system delivers a significant leg up on competition.

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Scientists. Software engineers. Researchers. At Axioma, we bring together the best minds from across the world to challenge the way financial institutions think about risk and investment portfolio management. We innovate. We create. We collaborate. Together, we deliver leading risk management and portfolio construction solutions to asset managers and hedge funds around the world.