S&P: Minimal Monitoring Of Alternatives

Date: Monday, November 6, 2006
Author: Dailyii.com

Considering all the flak alternative investments get for being so risky, it is somewhat shocking to learn that a scant number of asset managers surveyed actually monitor the discretionary use of them. According to a Standard & Poor’s survey of investment management firms in Europe, only 2% say they “comprehensively” monitor the asset class. “This is especially alarming,” says Mark Pearce, S&P associate director and head research of the project, “given that more and more pension funds are investing in funds that user alternative investments to improve their returns. That increased desire to use alternatives, he says has “underlined the important for improved risk management in investment firms...As most pension fund trustees are getting to grips with derivatives and other alternative asset classes, they will need to be convinced that their asset managers have in place the appropriate risk management strategy.” While the survey found that two out three firms agreed that the industry needs “holistic risk monitoring solutions,” those that actually have them is woefully low because of “cost, operational burden and time,” especially when developing a system from scratch. That said, Pearce said it is “encouraging” that the market has a desire for better risk monitoring. “The strong message we got from our dialogue with the market is that the quest is on for the correct framework for risk monitoring,” he said.