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Institutions Crank Up Their Spending on Risk Technology

According to Greenwich Associates, institutions surveyed will spend almost double their 2017 budgets for risk management this year.

Institutional investors are almost twice as worried about risk this year as compared to last — at least, if their technology spending is anything to go by.

Institutions are spending more money on technology that can assess the risk in their portfolios, a new survey from advisory firm Greenwich Associates shows. During the first quarter of 2018, Greenwich surveyed 54 institutional investors and asset managers in the United States and Europe about whether their spending on risk assessment technology increased, and what that spending has funded. The firm released its findings on Thursday in a new study.

The findings show that buy-side trading desks have nearly doubled their spending on risk technology for 2018, growing to 10 percent of total spending, compared with 6 percent in 2017. According to the study, that means the industry is spending nearly $700 million on risk management technology.

Respondents were most interested in risk management technology products that focus on market risk, according to the study. Seventy six percent of respondents said they were interested in technologies with these offerings. Portfolio risk was second most popular, with 70 percent of survey respondents interested. 

“After the financial crisis, which was almost ten years ago, when there was a huge drop off in spending, one of the areas of spending that got a lot of attention was on risk assessment,” said Kevin McPartland, author of the study, by phone. “There was a lot of fixing and bandaging and risk management.”

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According to McPartland, risk management spending has entered a new era, in which firms are using data to boost their yields, which is important in a market where interest rates continue to stay low. 

“People are trying to find yield, and being able to risk manage that properly is important," McPartland said.

Current risk management offerings still have their challenges, according to the study. Respondents’ biggest gripe was that they are unable to slice and dice data in ways that would benefit them most. Other issues include difficulty with integrating different data collection systems and lack of sufficient intraday and real-time reporting. 

These problems, according to McPartland, show that for the risk management industry, more personalization will be critical. And as systems become more personalized, McPartland expects spending to rise. 

“I do think spending will continue to increase; it certainly won’t decline,” McPartland said. “There’s a lot of opportunity here, and that encourages spending. It’s a lot easier for an asset manager to spend money when they see they can make quite a bit more from doing so.”

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