Buy Side Derivatives Management: Oiling the Swaps Machinery

by Cubillas Ding, June 27, 2014
Industry Trends
Asia-Pacific, EMEA, North America

Abstract

Celent urges investment firms to raise the bar on risk and transparency before more regulatory pressures are imposed.

In the report Buy Side Derivatives Management: Oiling the Swaps Machinery, Celent examines the current state of buy side risk and regulatory initiatives and ongoing pressure points, and provides pointers to navigating the journey ahead. The industry has come of age, and it needs to evolve and show the next level of maturity in line with the degree of weight, influence, and risk that it poses to financial stability within the broader economy.

“Regulators are starting to perceive investment managers as a source of systemic risk and may therefore demand higher levels of capital from the largest, systematically important asset managers,” says Cubillas Ding, Research Director with Celent’s Securities & Investments Group and author of the report. “This is not yet reality, but regulators may not be sitting on their laurels for long before they begin to act with more vigor.”

Furthermore, buy side firms will need to develop new capabilities in line with investment strategies that are more diversified, defensive, and “risk-transparent.” Where relevant, firms will be required to optimize their participation in the embryonic swaps trading and clearing ecosystem to mitigate the potential drag on portfolios.

This report evaluates the state of play around risk and regulatory initiatives and explores critical capabilities that investment management firms should emphasize in order to navigate emerging threats and opportunities in the changing landscape.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Structural Drivers Continue to Shape the Buy Side Business Agenda

2

 

Trend 1: Changing Investor Priorities and Multiasset Class Investing Require Increased Sophistication

2

 

Trend 2: Alternative Assets as a Path to Diversification and Resilience

4

 

Trend 3: Risk Factor-Based Approaches Continue to Rise

5

 

Trend 4: Regulations Are Creating Uncertainty and Raising Barriers to Entry

5

 

Trend 5: Imperative to Drive Efficiency, Manage Costs, and Increase Efficiencies

7

Seeing the Full Picture of Operational Alpha

8

 

Oiling the Swaps Machinery

8

 

Evolve Towards a Dynamic, Risk-Aligned Investment Lifecycle

8

 

Raise the Bar Towards a “Total Risk” Governance Model

10

 

Optimize Collateral Value Chains for Efficiency

11

 

Sharpen Analytical Capability to Navigate Evolving Swaps Product, Trading, and Capital Economics

12

Looking Forward

14

Leveraging Celent’s Expertise

15

 

Support for Financial Institutions

15

 

Support for Vendors

15

Related Celent Research

16

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