Asset Owners Change Approach to Risk Management

MSCI surveyed 85 participants from 26 countries, representing roughly $5.5 trillion in assets under management, for its research examining current and future risk management trends.

“The results of our survey clearly show a continued evolution through these uncertain market times with a greater focus on risk management and with more resources dedicated to measuring and managing risk,” said Frank Nielsen, Executive Director of Research at MSCI. “The results reflect how risk management has become both a high priority and a more formalized component of the overall investment process for our clients.” 

Since MSCI’s inaugural survey in 2009, “The Future of Market Risk Management,” asset owner participants have updated their risk management best practices.  Many have shortened their strategic asset allocation horizon, often from three years to one year, and the number of surveyed firms using stress testing has increased by almost 300% since 2009. Participants cited market risk, counterparty risk and liquidity risk as the top three risk concerns. Communication was also a theme—asset owners reported increased and more frequent communication between their risk team, board, and investment teams.

Other key themes in the 2011 survey results include:

• A paradigm shift of the risk management function as more resources are dedicated to the management and measurement of risk
• Plan investment horizon and asset allocation decision making have become more dynamic
• Stress testing and extreme (tail) risk hedging have become a very high priority
• External management selection criteria largely depend on transparency and risk control as allocation to alternatives is increasing

The survey was conducted from May-August 2011. Respondents were mostly CIOs, CROs, Portfolio Managers, Senior Risk Analysts, and Middle Office heads.

For a copy of the paper, visit http://www.msci.com/resources/research_papers/back_to_the_future_of_risk_management.html.