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.
