Risk Assessment Rises with Market Fall
Green, Paula L., Global Finance
Systems offerings abound, from global banks to boutique vendors.,, By Paula L. Green
As financial markets grow more volatile and technology more sophisticated, investment managers are using a growing number of risk management systems to keep their returns as high as possible.
Managers in charge of trillions of dollars of pension funds, endowments, and other institutional and private money are tapping into the technology offered by independent companies as well as proprietary systems run by the giant brokerage firms and investment banks.
"There's more interest in risk today because of the volatility in the market averages and stock prices," says Bob Baur, managing director of economics and analytics at Invista Capital Management, an affiliate of Principal Capital in Des Moines, Iowa."Underperformance is being measured against a benchmark. And if you underperform, you want to know why."
The creators of risk management systems have also benefited by the growth of the asset management and finance industry over the past decade with its proliferation of money managers intent on beating their competitiors. And of course the technology-which can now sift through reams of market data at lightening speed-makes it all possible.
Tim Kasta, managing director at KMV, a San Francisco company that can track the default probabilities of public and private companies, says it's not that the old assessment methods-the scouring of financial statements, the meetings with management, the use of agency ratings-have become obsolete.They are just limited.
"And they're inherently backward looking-looking at results of the preceding year," Kasta says. "Quantitative market-based models are better than any individuals can do on their own.You have the collected wisdom of thousands of equity prices. …