Asset owners are becoming far more concerned with complex risk management than the costs of regulatory compliance, according to a survey by BNP Paribas Securities Services.
“It is quite possible that the focus has moved away from cost and more to the quality of data and effectiveness of risk management.”The company reported that 59% of 177 institutional asset owners from around the world said the increasing complexity of risk management was a major challenge to their organisation, and 23% said it was the biggest challenge they faced.
BNP Paribas interviewed 59 pension funds in depth for the report, and these organisations also cited complexity in risk management as the top major challenge. Pensions also highlighted the general complexity of their operating environment and their ability to use capital efficiently as two other important challenges.
Mark Schoen, head of asset owner solutions at BNP Paribas Securities Services, said increasing complexity would “hit asset owners at the bottom line.” Almost a third (31%) said they expected rising risk management costs to hurt their returns.
“The industry needs more powerful tools to aggregate elements of risk in order to get an enhanced view of risk across their organisations and ultimately make better informed decisions,” Schoen added.
Asset owners were broadly confident in their ability to handle various risks, but BNP Paribas highlighted political risk as an area in which investors were less happy. Although 73% said they were confident they could deal with this type of risk, 7% said they were not confident—the highest of any specific risk.
Source: BNP ParibasIn contrast with their concerns over complexity, the cost of
compliance with regulation was lower on the list of challenges. Less than a
quarter of pension funds—and 28% of asset owners overall—cited this as a major
challenge.
“Despite an explicit focus on risk from regulators, we were surprised to see less focus on the cost of regulatory compliance,” BNP said in the report. “This suggests that for asset owners the major era of implementing new regulation is behind them. Now that most of the major regulations introduced after the financial crisis have been implemented by asset owners and as these regulations are further embedded within organisations, it is quite possible that the focus has moved away from cost and more to the quality of data and effectiveness of risk management.”
Respondents were also asked about their approach to the current low yield environment. The majority—60%—said they were seeking to enhance returns from their existing portfolios of assets, rather than implementing new strategies.
BNP Paribas surveyed 177 asset owners from 19 countries, with a total of approximately $6 trillion in assets under management. The respondents included pension funds, sovereign wealth funds, and insurers.
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