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    Risk management

  • Tracker Service

  • This page is from the Tracker Service September 2014 launch, and is only updated for Tracker subscribers

    A need to improve risk management practices in alternative fund investment by regulators is probably the single most important reason why the AIFM Directive has been enacted. The Tracker will therefore play particularly close attention to changes in risk management practices by both managers and their fund boards as a result of the Directive.

    In April and May of 2014 IFI Global’s research department conducted a major survey on risk management in alternative investing. It interviewed 80 firms involved in risk in the European investment banking and asset management industries. Findings included the following:

    • The approach taken by larger managers to risk management, those with AUMs in excess of $1bn, is significantly different from the boutiques. These differences might be growing. For smaller managers AIFMD’s risk provisions are being treated like any other compliance function.
    • Paradoxically, AIFMD might end up being a net negative for real risk management. Some boutique managers are adhering to the letter of the law but not the spirit of it. But investors perceive alternative funds regulated by the Directive to be ‘safer’ than offshore funds. The level of multi-tasking envisaged by some smaller managers is not healthy for real overall risk reduction.
    • Many alternative fund boards are not ready for AIFMD’s risk management requirements. Risk management is being confused with risk measurement by fund boards and some managers.
    • The larger the organisation interviewed the greater emphasis that there is on risk management as a broad and holistic concept encompassing various elements in addition to market risk. At these organisations there is less emphasis on a “tool-driven” approach to risk management and more on risk-monitoring and anticipation of future problems.
    • Hardly any of the managers interviewed plan to hire additional risk officers as a result of AIFMD although some are looking to use third party risk management firms to help improve their risk compliance function.
    IFI Global is planning to launch an AIFMD Risk Management Association for managers and others with an interest in this topic.
    Please contact Simon Osborn for more information.