Institutional investors increased their annual spending on risk and analytics platforms to $700 million, as “risk tech” expenditures nearly doubled to 10% of total buy-side trading desk technology budgets in 2017.
“Buy-side portfolio and risk managers today are motivated by risk tools that allow them to explore investment opportunities in emerging markets and new asset classes, as volatility and rising interest rates finally return,” says Kevin McPartland, Head of Greenwich Associates Market Structure and Technology Research and author of a new report, Developments in Buy-Side Risk Technology. The report presents the complete results of a Q1 2018 study in which Greenwich Associates interviewed 54 institutional investors in the U.S. and Europe about their use of risk management technology.
Risk analytics platforms help institutional investors examine and model the impacts of market, portfolio, credit, interest-rate, volatility, liquidity, counterparty, and operational risk on their portfolios. However, risk management platforms, whether built internally or bought off the shelf, have been difficult for investment managers to expand into new markets and new products.
Commercially available risk technology now provides an amazing level of flexibility and functionality. As such, the study found that the buy side is increasingly making the move to third-party platforms and away from internally built systems for their risk-management needs. These off-the-shelf solutions are seen as more cost effective in the long run and more than half the study participants utilizing outside solutions found them to be easier to integrate with other platforms both up and downstream.
“Institutional investors are coming to grips with the size of the opportunity innovations in risk tech now represent, and they are spending to ensure they are a part of that wave,” says Kevin McPartland.