S&P survey reveals investment firms are in pursuit of far reaching risk monitoring strategies

London - 26 October 2006

Very few asset managers monitor the discretionary use of alternative assets with as much scrutiny as they deserve according to research published today from Standard & Poor’s, the leading global provider of independent research, ratings, indices and reference data solutions.

Speaking to compliance and risk officers at 319 investment management firms in Europe, Standard & Poor’s found that only 2 per cent of asset managers comprehensively monitor the discretionary use of alternative assets. Mark Pearce, Associate Director at Standard & Poor’s who led the research said, “This is especially alarming given that more and more pension funds are investing in funds that use alternative assets to improve their returns. The increased desire to use alternative assets has underlined the importance for improved risk management in investment firms. As most pension fund trustees are getting to grips with derivatives and other alternative asset classes, they will need to be convinced that their asset managers have in place the appropriate risk management strategy.”

The three main reasons cited by many of the participants which deter comprehensive risk monitoring are cost, operational burden and time. Developing a system from scratch can be very expensive and time consuming as investment firms will have to change their systems and practices.

However, 66 per cent of those surveyed acknowledged that the industry needs holistic risk monitoring solutions which facilitate the discretionary use of derivatives. Mr Pearce continued, “It is encouraging that the market has an appetite for risk monitoring especially as more and more conventional asset managers now have to respond to increased usage of derivatives and other alternative asset classes. The strong message we got from our dialogue with the market is that the quest is on for the correct framework risk monitoring.”

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