Asset Management
Investment Firms' Risk Management Hasn't Really Moved On Since 2008 - Allianz GI

Risk management in the oversight of client portfolios has barely budged since the 2008 global financial crisis. That is a problem today, as investors contemplate a series of shocks.
In this year when lots of “unexpected” events are happening –
such as Brexit, the rise of Donald Trump and sporting upsets –
risk managers in wealth and asset management need to go back to
the drawing board, a survey suggests.
Although it does not explicitly name the extraordinary events
that have hit the headlines in 2016, a survey of institutional
investors by Allianz Global Investors argues that risk management
strategies must be overhauled urgently.
Conducted in the first quarter of 2016, AllianzGI’s 2016
RiskMonitor asked 755 institutional investors about their
attitudes to risk, portfolio construction and asset allocation.
The firms surveyed represent over $26 trillion of assets under
management in 23 countries across North America, Europe and
Asia.
"Investors are facing a world where average market returns
continue to be lower and volatility is higher. In this
environment, fulfilling investment objectives will require taking
risk and applying truly active portfolio management, which needs
to go hand in hand with an adequate strategy for managing that
risk. Unfortunately, our RiskMonitor results show that a
considerable number of investors do not show much confidence in
their ability to manage risks effectively in both up- and down
markets,” said Neil Dwane, global strategist, AllianzGI.
In the aftermath of the 2008 crisis, central banks carried out
stress tests and wealth managers examined whether reliance on
value at risk (VAR) models were fit for purpose; it is also an
increasingly common refrain that risk and volatility are not
synonymous. Even so, the Allianz findings suggest some parts of
the investment world have not adjusted enough.
The report found that since the financial crisis, risk management
practices have changed very little. Pre-crisis, investors’ top
three strategies were diversification by asset class (57 per
cent), geographic diversification (53 per cent) or duration
management (44 per cent).
Despite the fact that 62 per cent of respondents admit these
strategies did not provide adequate downside protection, their
use has actually increased post-crisis, with 58 per cent of
investors reliant on diversification by asset class, 56 per cent
using geographic diversification and 54 per cent embracing
duration management. As a result, two-thirds of institutions are
calling for innovative new strategies to help balance risk-return
trade-offs, provide greater downside protection and replace
traditional approaches to risk management, the report said.
Some 48 per cent of respondents said their organisation is
willing to pay more if it means access to better risk management
strategies and 54 per cent say their organisation has set aside
additional resources to improve risk management.
Allianz Global Investors oversees $495 billion of assets for individuals and institutions worldwide.