4 April 2011
Risk Systems Being Deployed by Hedge Funds
By Steve Marlin
“With risk and compliance issues top-of-mid, hedge funds are turning to trusted outsourcing partners to ensure the IT infrastructure is lean and agile,” writes Steve Marlin of Markets Media. He cites the example of IPM Informed Portfolio Management AB engaging DataArt to develop an advanced risk management system and provides commentary by Alexei Miller of DataArt and Anders Lindell of IPM.
“There's lots of talk in Europe about new directives coming out, but the real impetus for hedge funds enhanced transparency and risk management is coming from investors and the market,” Alexei Miller, executive vice president at DataArt, told Markets Media. “That's contributing to greater receptivity toward using outside help.”
DataArt, a software outsourcing firm specializing in capital markets, provides customized application development using a team of in-house subject-matter experts as well as a software development group in eastern Europe.
“We combine deep domain expertise in financial services with offshore cost advantages and resource flexibility,” said Miller.
DataArt is working with Informed Portfolio Management (IPM), a European hedge fund with $9 billion in assets, to build an advanced risk management system.
IPM engaged DataArt to build a risk management system designed to calculate risk and provide portfolio exposure metrics for several strategies and asset classes, including currencies, commodities and equities.
“Until early last year we were using internally developed risk analytic systems, but we needed to upgrade them from an operational perspective,” Anders Lindell, executive vice president of IPM, told Markets Media. “We came to the conclusion that we needed outside help.
The risk management system that DataArt built for IPM performs pre-trade risk modeling and approves recommended trades for each of the client's accounts. The Web-based app calculates various portfolio risk measures such as VaR (value at risk) metrics and exposure for the different types of accounts managed by IPM.
“The system acts as a risk overlay for our investment models,” said Lindell. “We utilize a systematic investment strategy, and we needed risk overlays to act in an equally systematic fashion.”
Markets Media covers the complex interrelationships among the key decision makers at hedge funds, broker-dealers, money managers, pension funds, endowments, exchanges, alternative trading systems, capital markets, vendors and regulators.