Morgan Stanley Offers Risk Management in Real-Time
An application service provider (ASP) offered by two risk management systems developers is increasing the use of risk management tools by both hedge funds and the trading desks of banks.
Morgan Stanley Prime Brokerage has developed a risk management service, AlgoLink, for its hedge fund clients through a joint venture with Algorithmics, a trading and risk management systems developer.
Morgan Stanley is utilising an alternative to the traditional ASP model in that the prime brokers will white label and run the ASP on the Algorithmics software for its equity hedge fund clients.
SunGard Trading and Risk Systems, which is currently beta testing its credit-risk application service provider, Credient, with two banks, manages and runs the ASP on behalf of the banks.
The Morgan Stanley/Algorithmics partnership will build a service that addresses both asset manager and asset owner requirements for measuring and reporting on the risk of complex equity portfolios.
AlgoLink went live with an electronic execution desk in January. It currently provides clients of Morgan Stanley Prime Brokerage with risk exposures by industry, sector and index, Value-at-Risk (VaR) reports, options analytics, and stress testing using historical and discrete scenarios. These reports are available to Morgan Stanley Prime Brokerage clients, and can include positions held at multiple custodians for users of Morgan Stanley Portfolio Accounting software.
The application service captures extreme changes in market conditions, allows for financial products with non-linear payoffs, and encompasses multiple asset classes and investment strategies.
Guru Ramakrishnan, managing director at Morgan Stanley, says: "The Morgan Stanley/Algo partnership will provide the right framework for establishing industry transparency, appropriate benchmarking, and risk-adjusted return metrics which will be critical to the ongoing success of the hedge fund industry. …