Fri, Jul 29, 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. Opalesque Exclusive: California-based manager launches long/short equity hedge fund with unique algorithm[more]

    Benedicte Gravrand, Opalesque London for New Managers: SJL Capital LLC, an investment advisory firm based in California, has launched its maiden fund, the SJL MarketDNA Hedge Fund LP. The fund, which began trading

  2. Manny Roman to move from Man to Pimco[more]

    Benedicte Gravrand, Opalesque London: Emmanuel (Manny) Roman, an investment world veteran, has been hired by PIMCO, the large US bond fund house, as chief executive officer. PIMCO's current CEO Douglas Hodge will assume a new role as managing director and senior advisor when Roman joins P

  3. Europe - European hedge funds shrink and shutter as turmoil hurts returns, Investors go bargain-hunting for U.K. property after Brexit vote, Brexit: Guidance for fund directors - what to know and what to ask[more]

    European hedge funds shrink and shutter as turmoil hurts returns From Bloomberg.com: Europe’s hedge-fund industry contracted for a sixth straight quarter as the U.K.’s decision to leave the European Union and concerns that China’s growth is slowing caused losses and forced some money man

  4. Platinum Partners starts liquidation of hedge funds following municipal union kickback scandal[more]

    Komfie Manalo, Opalesque Asia: Platinum Partners, the hedge fund in the middle of a New York City municipal union kickback investigation, is reported to be liquidating two of its funds, the New

  5. SWFs - Abu Dhabi wealth fund says long-term investment gains fell[more]

    From Bloomberg.com: The Abu Dhabi Investment Authority, one of the world’s biggest sovereign wealth funds, said its long-term gains dropped in 2015. The fund’s 20-year annual rate of return slowed to 6.5 percent at the end of 2015, from 7.4 percent a year earlier, it said in its annual review. Over