Sat, Aug 27, 2016
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. Strategies - The 'Holy Grail' hedge fund strategy to handle a black swan the size of World War I, Hedge funds get more pushback on terms as enthusiasm for strategy wanes[more]

    The 'Holy Grail' hedge fund strategy to handle a black swan the size of World War I From IBTImes.co.uk: To illustrate a strategic gap common to today's portfolio managers, George Sokoloff, PhD, founder and CIO at Carmot Capital, proposes an interesting thought experiment – a breakdown of

  2. Institutional investors - Investors set to increase allocation to private debt, With investment income key, Richmond retirement system faces funding challenges[more]

    Investors set to increase allocation to private debt Investors are set to increase their allocation to private debt, with 60% revealing they believe the private debt market will grow over the next 12 months, according to a new study by Elian, a leading funds services provider. 41%

  3. Investing - Hedge funds snap up banks, unload Apple, Some of hedge funds' favorite stocks are finally starting to beat the market, Einhorn's Greenlight shifts positions, Treasury yield climbs to two-month high as Fischer joins hawks, 9 stocks smart investors put their money in last quarter[more]

    Hedge funds snap up banks, unload Apple From Barrons.com: Prominent hedge funds have a newfound love of big banks, and some have a distaste for shares of Apple, regulatory filings released last week show. The filings suggest that the funds have been pivoting their portfolios in recent mon

  4. Chesapeake energy seeks $1 billion loan to refinance debt[more]

    From Bloomberg.com: Chesapeake Energy Corp. is seeking a $1 billion loan as the company battered by cratering fuel prices and credit downgrades takes a step to address its $9 billion debt load. The natural gas producer hired Goldman Sachs Group Inc., Citigroup Inc. and Mitsubishi UFJ Financial Group

  5. Institutions - Nordic pension funds magnify focus on unlisted and direct investing, building up teams[more]

    From IPE.com: As bond yields remain at low or negative levels, pension funds and other institutional investors in the Nordic region are stepping up efforts to find higher returns by adding more unlisted investments to portfolios and are expanding in-house teams in order to do this, according to new