Risk Management for Asset Managers
Asset managers have a particular set of risk challenges. We have experience of providing risk services to alternative and traditional asset managers as well as service providers to asset managers.
Hedge funds are often small scale operations, at least compared with traditional fund managers or banks, yet enter into large positions in complex financial products. They require solutions that can deal with complexity yet are appropriate to their scale. Hedge funds are never far from the headlines, and institutional investors and regulators are increasingly keen to ensure that fund managers adopt high levels of risk governance.
We have experience of providing risk services to hedge fund managers and the banks, prime brokers and other service providers dealing with them. Our risk health check for hedge funds is a customised review which looks at the specific risk management policies, processes and systems we would expect to see operated by a hedge fund manager, taking into account the fund’s specific size and strategies.
We also have experience of developing and benchmarking risk policies for banks in their dealings with hedge funds.
Risk management on the buy-side has traditionally focused on the modelling of market risk as an input into the portfolio construction process. However, in the light of the financial crisis and the associated regulatory response, investors are increasingly focusing on the measurement and management of counterparty credit risk. This includes a range of capabilities and processes, including:
- Overall risk governance policy and implementation
- Review of legal documentation governing counterparty relationships
- Robust internal valuation capabilities
- Measurement of counterparty credit risk using best-practice techniques
- Implementation and management of robust counterparty credit limits
- Policy and process for the exchange of collateral
- Preparedness for central clearing of OTC derivatives
InteDelta can provide market best practice guidance across the spectrum of risk needs, including methodology, organisational and process design and technology selection and implementation. As an independent consulting firm, InteDelta is also well-placed to provide advice on suitable outsourcing options for risk management processes.
A number of different types of providers deliver services to asset managers such as prime brokerage, custody, administration and outsourced collateral management. Many of these providers face risk issues such as:
- Instrument valuations
- Provision of risk reporting to clients
- Determining margin requirements
- Optimisation of collateral
We have worked with a variety of service providers in addressing their risk issues and to help them develop their businesses.