SunGard/PRMIA Survey Identifies Ten Buy-Side Market Risk Trends for 2012

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Regulation, transparency and organizational change will be key concerns for risk managers in buy-side institutions during 2012, according to a survey by SunGard and the Professional Risk Managers’ International Association (PRMIA).

Regulation, transparency and organizational change will be key concerns for risk managers in buy-side institutions during 2012, according to a survey by SunGard and the Professional Risk Managers’ International Association (PRMIA). The survey, carried out in late 2011, polled 388 industry participants in 62 countries, including asset managers, private banks, hedge funds, insurance firms, pension funds and regulators. They gave their views on the challenges and trends they see shaping the industry in 2012, from asset class allocation to the role of risk management in successful fundraisings.

Robert Mackay, chief operating officer, hedge funds and risk solutions, in SunGard’s asset management business, said, “2012 looks to be a formative year for buy-side risk management. We believe demonstration of robust risk practices will increase in importance and influence raising assets. Risk managers stand to benefit from these developments if they have the tools to demonstrate their value and communicate meaningful risk insight to different audiences both inside and outside their organizations.”

The ten trends in buy side risk management identified by the SunGard/PRMIA survey are:

1.    Despite the 2011 commodities ‘flash crash’, buy-side institutions are expecting to focus investment in energy and commodities.

  •     25% of respondents said they would be increasing their exposure to these asset classes in 2012. Along with fixed income, they represent the top three growth asset classes.

2.    Absolute return and emerging market equity are the two investment strategies that will see the greatest increase in assets over 2012.

  •     21% of participants expect absolute return strategies to see an influx of investment, compared to 19% for emerging market equity and 17% for liability driven investments.

3.    Risk management will take on greater prominence within buy side institutions in 2012.

  •     Over 85% of respondents agreed that it will play an increasingly important role in their organizations.

4.    Reflecting its greater importance to the buy side, risk management will become central to raising assets in 2012.

  •     Over 80% of respondents agreed that having transparent risk management practices is increasingly crucial in attracting new investments.

5.    The ability to demonstrate risk management across multiple asset classes will be a priority in 2012.

  •     Over 80% of respondents rated this as either important or very important.

6.    Faster and more flexible risk reporting with extended asset class coverage will help make significant positive contributions to risk management.

  •     28% of participants think faster and more flexible risk reporting would help improve risk management in their organization.

7.    There is a growing realization that, for risk management to be effective, organizational change needs to take place.

  •     50% of respondents said that the single most positive development for risk management would be changes in organizational cultures, including a better risk culture and a better defined risk appetite.

8.    Regular stress testing will become a key part of buy side firms’ portfolio management practices.

  •     90% of respondents rated stress tests as either important or very important in 2012.

9.    Firms are preparing for a new global regulatory environment, affecting the whole buy-side spectrum and shaping 2012 risk management practices, regardless of a firm’s location.

  •     Notably, 66% expect Dodd Frank and Solvency II to have the biggest impact, even though these regulations will not be implemented this year and have only regional reach.

10.    Despite increasing acceptance of the importance of risk management, the ability to demonstrate its value will be risk managers’ primary challenge in 2012.

  •     60% of respondents named this as their main concern. While increased investor demand for risk reporting will underline its potential positive impact on assets under management, buy-side firms will have to prove that their risk systems and processes are really going to help create value for the end investor.

Philip Lawton, senior analyst on Aite Group's Institutional Securities & Investments team, commented: “Regulators and senior management have recognized the value of sound risk management. The next step is for risk managers to make a clear connection between risk and return to influence front office investment decisions.”

To listen to Aite Group’s Philip Lawton discuss the findings of the survey with Ken Winston, chief risk officer at Western Asset Management, and to download the full report, please go to http://www.sungard.com/APTMarketRiskSurvey2012.

About PRMIA

The Professional Risk Managers’ International Association (PRMIA) is a higher standard for risk professionals, with 65 chapters around the world and over 80,000 members. A non-profit, member-led association, PRMIA is dedicated to defining and implementing the best practices of risk management through education including the Professional Risk Manager (PRM™) designation and Associate PRM certificate; webinar, online, classroom and in-house training; events; networking; and online resources. More information can be found at http://www.PRMIA.org.

About SunGard’s APT

SunGard's APT provides investment technology for a broad range of asset classes, countries and regions including data and software for understanding market risk, credit risk, liquidity risk and for portfolio construction and performance analysis. APT provides investors with statistical market risk models, performance and risk analytics and portfolio optimization and construction tools. APT's customers include institutional and retail asset managers, pension funds, private wealth managers, hedge funds, broker/dealers, prime brokers and proprietary traders. http://www.sungard.com/apt/learnmore

About SunGard

SunGard is one of the world’s leading software and technology services companies. SunGard has more than 17,000 employees and serves approximately 25,000 customers in more than 70 countries. SunGard provides software and processing solutions for financial services, education and the public sector. SunGard also provides disaster recovery services, managed IT services, information availability consulting services and business continuity management software. With annual revenue of about $4.5 billion, SunGard is the largest privately held software and services company and was ranked 434 on the Fortune 500 in 2011. Look for us wherever the mission is critical. For more information, please visit http://www.sungard.com.

Trademark Information: SunGard, the SunGard logo and APT are trademarks or registered trademarks of SunGard Data Systems Inc. or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.

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Adriana Senior
SunGard
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