Who Benefits from a Firm-Wide Investment Risk Assessment Solution

Finvent Consulting Services Group | 3rd July 2023

To remain competitive, private banks, asset managers, hedge funds, wealth managers and family offices have been trying to modernize certain aspects of their investment operations. Although the industry gets more sophisticated by the day, there are remaining gaps and challenges in identifying the various investment risks which are often hidden from the untrained eye.

A disproportionate amount of human resources, time and working capital tends to be allocated into middle and back-office problem-solving, rather than into front-office decision-support processes. Such a trend may emanate from the ever increasing ‘real-time’ client reporting demands that institutions of all types face in a fast-evolving world.

The primary focus of an investment operation should be to equip its front office decision-makers with the most configurable and smart software platforms which can assist them in systematically producing consistent risk-adjusted returns over longer time periods. Such an effort can be complemented by the production of targeted performance and risk exposure reports, across asset classes, currencies, geographical exposures, instrument types and customer segments.

Viewing Risk from Different Angles

A multi-asset class, multi-currency risk management platform should complement a solid portfolio accounting system in providing a rich selection of metrics and calculation stress-testing methodologies which can identify and attribute how much risk one must assume to realise a certain portfolio performance level.

Such a solution should be designed for the benefit of:

  • The Portfolio Manager who wishes to be constantly informed of how extreme market movements and volatility spikes can impact the valuation of selected investment strategies, and consequently analyse the impact of any allocation changes onto the portfolio risk components
  • The Relationship Manager who needs to offer clients a holistic view of their aggregate portfolio return and risk trajectory, aiming to provide risk-adjusted performance and valuation figures over emerging market cycles
  • The Risk Officer who often faces the challenge of calculating various risk measures, involving complex formulas and heavy data processing, and wants to assess the market risk that the firm is exposed to, through predictive ex-ante risk metrics and advanced stress-testing simulation analytics
  • The Compliance Officer who wishes to monitor the firm-wide investment risks, to ensure that they do not deviate from the pre-determined regulatory guidelines, company investment policies or client profiling mandates
  • The Executive Manager who wants to gain an easy and timely access to information concerning the market risks of a firm’s managed assets, investment strategies and portfolio managers.

This way, a single software risk assessment platform can be utilised in different ways depending on the business objectives of its users. By looking at a common set of statistics and simulation scenarios from various perspectives, all participants in the investment process of a firm can collaborate to strengthen their collective sharpness and investment reflexes.

FINVENT Software Solutions is a producer and distributor of financial software applications and custom engineering services for the investment management sector. The firm serves financial institutions in European and African countries, including asset managers, family offices, investment banks, pension funds and hedge funds. Its award-winning KlarityRisk platform specializes in multi-dimensional investment risk analytics, stress-testing simulation scenarios, risk limits management, and fixed income performance attribution reporting.

Disclaimer: Nothing contained in the aforementioned references constitutes an investment solicitation or a recommendation of any type.