Products September 17, 2013

Northern Trust Hones Risk Reporting

September 17, 2013 (PLANSPONSOR.com) – Using broader and deeper analytics, Northern Trust has enhanced its ex-ante – or ‘forward looking’ – investment risk-reporting capabilities.
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The enhancements were made in response to the expanding and increasingly sophisticated risk management needs of institutional investors.

Pension funds, for example, now have access to broader and deeper risk analysis, including more integration between analysis of investment risks and the impact they may have on the fund’s ability to meet its liabilities at a future point in time.

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The “next-generation” risk reporting services were developed to provide clients with increased risk awareness, which will facilitate better investment decisions, according to Ian Castledine, global head of investment risk and compliance product for Northern Trust. “A key step forward has been made in bringing together the analysis of investment risks and their impact on a pension fund’s ability to meet its changing liabilities over time in a single report, rather than looking at the two dynamics in isolation,” Castledine said. The enhancements also offer clients an improved user experience with more informative graphics and intuitive visual information.”

Northern Trust’s analytics model both assets and liabilities, and the data is brought together in one report to show comparisons of risk levels and potential risk mismatch alongside the managed assets. This means that it is possible to look at how investment risks would impact funding levels and the ability of a fund to meet its liabilities over time, as well as how changes in liabilities may open up opportunities to reassess investment decisions. This aims to aid clients in making informed decisions about more sophisticated liability management solutions. Clients can see at a glance how risks compare between assets and liabilities and understand potential mismatch risks.

Enhanced active allocation and risk contribution reporting allows clients to gain a deeper insight into their exposures on an asset class, region and sector basis, or manager selection decisions, and strengthens overall risk awareness. This tool can help clients understand the risks associated with deviating from their stated target asset allocation.

Broader trend analysis offers clients greater awareness of the context in which current risks exist, facilitating enhanced risk mitigation strategies. Improved graphics enable clients to better understand historical volatility trends and how these relate to global market events and the evolving investment landscape.

“We believe that these enhancements present our analysis of essential risk information in a clear and actionable format,” Castledine said. “Equally important, our risk reports, combined with the support of one of our expert consultants, can help create an effective dialogue around the investment process facilitating discussions between asset owners and their chosen investment professionals.”

Administration September 17, 2013

Investor Demand Driving Alternative Investment Changes

September 17, 2013 (PLANSPONSOR.com) – Investors are leading the way in shaping the future of the alternative investment industry, a survey suggests.
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The Next Alternative: Thriving in a New Fund Environment, conducted jointly by financial services provider State Street and research consultants Preqin, found fund managers see investor demands for greater transparency, more favorable fees and greater liquidity at the fund level as three of the top five drivers of change over the next five years.

“Alternative asset managers that want to create a competitive edge need to balance meeting new requirements from investors and regulators while ensuring operational and performance excellence,” said George Sullivan, executive vice president and global head of State Street’s Alternative Investment Solutions. “The mainstreaming of this asset class debunks common misconceptions that have hindered opportunities for investors and fund managers alike.”

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First among these common misconceptions is that alternative fund managers have been reluctant to offer greater transparency into fund performance and risk. In reality, the survey found, managers are reporting more information to investors, more frequently. Forty-four percent of fund managers have increased the amount of information they report on their holdings, risk and performance since 2008 and an additional 16% plan to do so over the next five years.

Nearly one-third (32%) have increased their reporting frequency since the financial crisis. Capturing, structuring and reporting data “on demand” for stakeholders will give managers a clear advantage as investor demand for greater transparency in risk and performance was the most cited driver of change in the alternative fund industry today, State Street said.

Second among the misconceptions is that the era of major change in the alternative sector is largely finished. In reality, the survey found growing competition means alternative fund managers are reassessing their fee structures and seeking ways to differentiate their offerings with new product and investment strategies. Twenty-nine percent of alternative fund managers surveyed indicated they plan to add new investment strategies with in-house resources over the next five years, while 25% said they have done this since 2008.

Third among the common misconceptions is that the alternative industry regulation is stifling growth and innovation. Although burdensome for many, the survey found heightened regulation is also creating opportunities for managers to distinguish themselves from peers and tap into an investor appetite for increased transparency and oversight. Of the 86% of alternative fund managers who expect their costs to increase over the next five years, largely driven by regulation, 75% are optimistic this will not constrain their growth potential.

“This survey highlights key changes that are coinciding with the growth and maturation of alternatives as an asset class and offers a glimpse into what the next five years will look like for the industry,” said Sullivan. “Managers who remain innovative as they respond to demands from investors will be positioned for success in this new era where investors will look to employ alternatives more commonly than ever before.”

Other findings of the survey included:

  • Nearly one in five fund managers (18%) plan to expand into new regions by 2018;
  • More than one in four (26%) have introduced managed accounts in the past five years, and another 18% plan to do so by 2018;
  • A majority of respondents (58%) said hybrid alternative fund structures, which blend features of traditional hedge fund and private equity vehicles, will increase over the next five years; and
  • Ten percent of fund managers plan to acquire another business in the next five years, compared with 7% who have already done so in the past five years.

The joint survey questioned nearly 400 leading alternative fund managers from hedge funds, private equity firms and real estate funds.

More information about the survey can be found here.

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