2023 Trend: For Risk Management, It’s Just Another Day at the Office

Jon Chandler

Director

Jon Chandler brings more than ten years of experience in the financial services industry to his Director's role at Cutter Associates. Prior to joining Cutter, Jon was a senior business analyst for State Street Global Advisors (SSGA), where he was involved in a number of projects for the front and middle office, including UAT design and execution for an order management system (Fidessa IMS), the implementation of a web-based due diligence platform (FundInsight), and an enterprise solution to support blended benchmarks. Prior to his project roles, Jon was a principal in fixed income trade operations at SSGA. He has extensive experience with post-trade operations and applications, such as OASYS/CTM, PORTIA, MBSExpert, and Failstation. Jon earned a bachelor of arts in history from the University of Florida and an MBA from Northeastern University.

Recent research assignments and publications include the following:

Alternative Investment Systems
Collateral Management
Investment Accounting Solutions
Order Management Systems
Performance Measurement and Attribution Systems
Reconciliation Solutions
Risk Management Systems

Andrew Jenkins

Director, Consulting

Andrew Jenkins brings more than 20 years of experience in buy-side financial services, with a focus on project management in the areas of performance measurement and attribution, portfolio analytics, GIPS compliance, risk management, and data management. At Cutter Associates, Andrew works in the firm’s Strategy & Data Management and Performance Measurement practices.

Andrew is a thought leader on performance measurement business practices and GIPS compliance, regularly speaking on the topics at industry conferences. Andrew has a deep understanding of asset management operational and technology processes, and has successfully managed several large-scale operational and systems integration projects throughout his career, including data warehouses, performance measurement and attribution systems, web-integration services, and the acquisition and implementation of a client reporting service. He is active in multiple industry groups in the areas of performance measurement and risk and in board-related forums.

Prior to joining Cutter, Andrew was a director at Charles Schwab Investment Management, where he oversaw performance measurement and attribution, risk, client reporting, and competitive research. He previously worked in the Board Analysis Services Group at Lipper Analytical (now Thomson Reuters). Andrew holds a bachelor of arts in economics from the University of Colorado.

Shankar Subramanian

Consulting Principal – Public Funds, Compliance and Risk Management

Shankar Subramanian has over 25 years of industry experience in investment management and technology solutions. Shankar has a deep understanding of investment data management, portfolio management, risk management, investment accounting, and alternative investments. At Cutter Associates, he heads the Risk and Compliance practice, helping client with investment risk management, and asset allocation, as well as providing support for compliance with consulting on trading forensics, communication surveillance, regulatory reporting, and guideline compliance. He advises on, and designs, operating models, selects systems, and implements business and technology solutions. He also leads development of Cutter’s alternative investments practices and the firm’s efforts to provide thought leadership and strategic and tactical advice to asset owner clients.

Prior to joining Cutter, Shankar held senior roles at IBM Global Services and PricewaterhouseCoopers (PwC), advising clients and leading global delivery teams in large engagements. Shankar holds a Bachelor of Science in engineering from the Indian Institute of Technology and an MBA in finance and information systems from the Indian Institute of Management.

Feb 17, 2023

The following blog post is one in a series of Cutter 2023 Trends that provide insights into industry challenges and considerations for our clients and member firms in 2023 and beyond.

In 2022, investment managers contended with every imaginable risk and shock that could be thrown at them. And if some of the early predictions for 2023 materialize, investment managers will once again face difficulties in navigating the coming year. That said, we already see risk managers looking for new and improved ways to meet these challenges. But no matter what happens, every single day in 2023 will be just another day at the office for risk management.

Of course, investment managers can’t avoid risk ─ in some cases, it’s necessary. While past events have proved that we can’t predict the future, we can learn from the past and adapt by refining your firm’s tools and controls to better prepare for what may come.

As a start, risk management teams in 2023 will need to adapt by adjusting their controls and practices to prepare for the likelihood of new threats or scenarios, such as spread risks, or the possibility that a loan becomes longer in duration than expected (extension risk). Liquidity risk will continue to attract more attention. And at least in the near term, some investment managers may look for other solutions if factor risk models and correlations no longer work as they should.

We expect that we’ll also start seeing firms make improvements this year in managing risk in the private markets space. Although firms have increased their allocations to alternative assets, some of these markets are cyclical and undergoing changes now that rates are rising and borrowing becomes more expensive. Rising rates, alongside other potential economic threats, should help firms drive innovation, encourage them to develop better controls and risk practices for alternative investments, and move some away from relying solely on public market proxies. Some limited partner investors will also begin to evaluate the underlying assets in their private market portfolios, while more direct investors will adjust their valuations based on changes in the public markets.

In 2023, we also expect to see new alternative asset vendors emerge. Some vendors that are already known in these markets will begin to extend their footprints further upstream, beyond the operational support for private investments that they have focused on in years past. As investment managers search for higher yields and investors look for new opportunities, this will also prompt some vendors to extend their support into new areas of coverage, such as debt or infrastructure.

Lastly, we see risk management teams playing an increasing role in managing climate risk, or more broadly ESG risk. While the management of ESG varies by firm, we do predict an evolving federated structure where more investment risk professionals will be tasked with monitoring for ESG-related risks, as part of firms fulfilling client mandates and fiduciary roles. Of course, all of this will be impacted by the most unpredictable of risks ─ politics.

Only time will tell what’s truly in store for our industry in 2023, but we’re confident that the firms we work with at Cutter will build a proper line of defense and be prepared.

To speak with a Cutter analyst or consultant about this trend, contact us at [email protected]. To read more 2023 Trends, see our whitepaper, Trends in Asset Management: 2023 and Beyond.