Interconnectivity between buy-side stakeholders grows, says Algorithmics
Buy-side institutions – including insurers, pension funds, asset managers, hedge funds, wealth managers and asset services – are now more interconnected than ever before, according to a White Paper from Algorithmics.
The research, produced in collaboration with 13 primarily buyside executives, says two factors have combined to bring this about – the tide of new regulation and the low-yield market environment.
The paper notes that increased regulation requires asset owners to report on risk at a more granular level and this detail will need to come from their asset managers and servicers.
The low-yield market has forced asset owners to look to higher risk investments to meet their investment goals and to demand greater transparency and risk awareness from their managers.
Andrew Aziz, executive vice president of Buy-Side Risk Solutions at Algorithmics, said wary investors are beset with new regulatory requirements, and all are trying to focus on the quality of risk management.
Regulators are now pushing asset owners to assess risk from a full balance sheet perspective, changing the demands placed on their external asset managers and the types of services required.
“In our view, interconnectivity presents an opportunity for the buy side to develop new solutions and innovative ways of doing things, such as providing Solvency II compliance services, expanding liability driven investment (LDI) vehicles as well as supplying liability proxying capabilities,” Aziz said.
He added that buy-side institutions, especially asset managers, need to be cognizant of the domino effect created by the interconnectivity of risk.
“Just because regulation is not directed specifically at them, it does not mean that they are immune to its effects. Potentially, the knock-on effect of demands from the regulator, to the asset owner, to the asset manager, to the asset servicer will present both challenges and opportunities.
To download a copy of Algorithmics’ latest white paper, ‘The Buy Side Ecosystem: The Interconnectivity of Risk’, click here: