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MSCI: Asset owners rapidly building risk management policies

Oct 09, 2011 Walt Wojoiechowski

Perhaps in response to a string of recent incidents involving catastrophic investment losses as a result of weak risk management policies, asset owners are beginning to reconsider their risk strategies. A survey released this week by MSCI found more than three quarters of institutional investors - 80 percent - are now using stress tests, compared to a mere 27 percent in 2009. They are also reducing their allocations of strategic assets in order to better monitor funds and mitigate investment risks. "The results of our survey clearly show a continued evolution through these uncertain market times with a greater focus on risk management and with more resources dedicated to measuring and managing risk," said Frank Nielsen, executive director of research at MSCI. Risk management is increasingly becoming a high priority and a formalized component of the overall investment procedures, Nielsen added. Asset owners also cited market risk, counterparty risk and liquidity risk as the three most pressing risk forms. However, investors point to the ability to incorporate inflation and growth changes into market moves as a top challenge.