Wed, Sep 2, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Operational risk in managed accounts threatens profitability and reputations

Wednesday, October 05, 2011
Opalesque Industry Update - Most asset managers and sponsors will attest that the managed accounts industry is quite sound from both an investment-risk and a regulatory standpoint (especially if a fiduciary standard does come to be enforced). However, operational risk is a concern, and threatens to undermine the profitability and reputation of firms that do not mitigate these risks.

In The Cerulli Edge-Managed Accounts Edition, 3Q 2011 issue, Cerulli analysts examine specific areas where managers have operational risk concerns. The analysis hones in on UMAs and model-only portfolio submission, as well as with general participation in separate account platforms.

"We asked asset managers about four facets of being on managed account platforms that contributed to operational risk. Three of the areas were identified by more than 75% of respondents. The one most often identified was trade order management, followed by delivering model portfolios (or paper portfolios), and fee processing," comments Patrick Newcomb, senior analyst in Cerulli's managed accounts practice.

When it comes to asset managers' primary concerns with submitting model portfolios to overlay managers/UMA programs, receiving accurate compensation and information on sales and flows rank as the greatest concerns.

"For the most part, the responsibility for these two issues falls on the sponsor, leaving the asset manager with little control. Also, while model portfolio submission can be an avenue for building better relationships with sponsors, it can also build business risks to other products, should the model relationship hit rocky times," says Sean Daly, analyst in Cerulli's managed accounts practice.

Part of asset managers' anxiety around models stems from the fact that there is little uniformity across how sponsors and overlay managers implement models, and there is little in terms of standardization from an industry perspective. Asset managers remain in a difficult place when it comes to tracking how their models are actually being executed upon once they leave the hands of the manager.

"Despite the move to models, there is still an estimated $535 billion in traditional separate accounts. Unfortunately, asset managers cannot be sure whether the next dollar will come through a model portfolio or a traditional separate account, making it very difficult to staff for the operational component," continues Newcomb.

These findings and more are from The Cerulli Edge - Managed Accounts Edition, 3Q 2011 issue.

Click HERE to request a press copy of this research.

(press release)


BG

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Cliff Asness attracts $360 million as liquid alternative funds hold up[more]

    From Bloomberg.com: As U.S. stocks suffered their worst month in more than three years in August, Clifford Asness’s managed futures fund was able to profit. Investors are taking notice. The $9.12 billion AQR Managed Futures Strategy Fund pulled in an estimated $360 million in net subscriptions last

  2. Activist News - Carl Icahn has snapped up a huge stake in Freeport-McMoRan, and the stock is ripping, Meet Europe's best activist investor[more]

    Carl Icahn has snapped up a huge stake in Freeport-McMoRan, and the stock is ripping From Businessinsider.com: Carl Icahn has picked his next target: Freeport-McMoRan. Icahn and a group of other investors have snapped up an 8.46% stake in mining company Freeport-McMoRan, according to a j

  3. North America - Hedge fund manager Ray Dalio’s challenge to the Fed[more]

    From Newyorker.com: For some reason, Janet Yellen, the chair of the Federal Reserve, decided to skip this year’s annual Fed conference in Jackson Hole, where monetary policymakers from the United States and abroad get together with some prominent academics to discuss the big issues of the moment. Th

  4. Performance - Einhorn and Loeb's hedge funds both decline 5% in August, Some target-date funds miss in the market turmoil[more]

    Einhorn and Loeb's hedge funds both decline 5% in August From Reuters.com: Hedge fund billionaires David Einhorn and Daniel Loeb saw their main funds lose roughly 5 percent in August during a dramatic market sell off, two people familiar with their returns said on Monday. Einhorn's

  5. Opalesque Exclusive: Foundation returns slide, but commitment to alternatives remains[more]

    Bailey McCann, Opalesque New York: Private and community foundations posted returns of 6.1 percent for the 2014 fiscal year (January 1 – December 31, 2014), down from the 15.6 percent return reported for FY2013, according to the latest Council on Foundations–Commonfund Study of Investment of End

 

banner