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Alternative Market Briefing

Bfinance risk management survey finds diversification is key for institutional investors

Thursday, May 16, 2013

Beverly Chandler, Opalesque London: bfinance, the institutional investor consultancy, has published the results of its first Risk Management Survey of institutional investors responsible for assets under management of some $480bn, located in Europe, the US and Middle East.

Key findings included the fact that there is a growing focus on monitoring asset class correlation and seeking out diversification benefits paves the way to further improvements. The firm claims that in the "new normal", pronounced correlation effects and increases in allocation to real assets should prompt institutional investors to depart from risks models that are based on historic returns. There was also a finding that organisational changes will be driven by consensus among institutional investors that risk monitoring and management should be independent of the investment function.

There was also a finding that the resources allocated to risk management are not keeping pace with the need for heightened risk monitoring. Assuming a threshold cost of $250k for a sophisticated risk system, 72% of respondents have not invested sufficiently, the firm found. The increasing interest of investors in real assets and absolute return strategies is raising additional challenges for pension fund risk departments, they write.

Toby Goodworth, Head of the Risk Management at bfinance in London said: "The collapse of Lehman Brothers and continued market u......................

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