A study conducted by Greenwich Associates found that institutional investors increased their annual spending on risk and analytics platforms to $700 million, with expenditures nearly doubling to 10% of total buy-side trading desk technology budgets in 2017.
The report is the result of a research study in Q1 2018, in which Greenwich Associates interviewed 54 institutional investors in the U.S. and Europe about their use of risk management technology. While valuable to help investors to examine and model the impacts of a number of criteria, they have been difficult for investment managers to expand into new markets and new products.
Risk management platforms improve the analysis of market, portfolio, credit, interest rate, volatility, liquidity, counterparty, and operational risk on institutional investors’ portfolios.
Kevin McPartland, Head of Greenwich Associates Market Structure and Technology Research, said:
“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.
“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,” Kevin McPartland added.
Risk technology has seen much innovation in recent years as platforms increased their flexibility and functionality. While many are still able to build the technology internally, the study found that the buy-side is increasingly making the move to third-party platforms. Institutions see the commercially available risk analytics platforms as more cost-effective in the long run. Over half the study participants utilizing outside solutions found them to be easier to integrate with other platforms both up and downstream.
The offering of risk management tools has increased exponentially in response to regulatory pressure, such as the Markets in Financial Instruments Directive (MiFID II) regulation that requires institutions to have proper systems in place for best execution and anti-money laundering compliance.
Centroid launched a MetaTrader 5 risk management tool for foreign exchange brokers. Accenture has launched a risk management tool for U.S. banks that provides analytics tools, data models and reports, and APIs.
