Independent Risk Monitoring is a new service for Europe’s asset managers designed to provide monitoring services for both segregated and investment fund portfolios.
It has been set up Peter Jeffreys, a co-founder of Fund Research – now part of Standard & Poor’s – and Yves de Naurois, former head of global investment process at Citibank Private Bank in Geneva and Luxembourg.
The service will monitor portfolios’ adherence to their mandate, benchmark and risk profile. “We are not a classic risk management operation, but will monitor risk in a number of ways,” said Jeffreys. The service will usually be in addition to the risk management processes managers have.
“We want to provide an added layer of comfort to trustees and directors of funds, investment trusts and other vehicles,” he says, pointing to the fact that the monitoring is being done by a separate, unconnected entity. “Where possible we like to obtain the portfolio data from a source other than the manager, such as the custodian.”
The firm will use off-the-shelf risk measurement tools, but has developed a proprietary exception based process to provide daily monitoring of all portfolio constituents to identify risk violations from mandates or benchmark. “What is unique is how we combine these to enable us to investigate very quickly where problems lie.”
De Naurois says this complements existing practices by highlighting process divergence, and will issue ‘alerts’ relating to prospectus, policy and strategy or style divergences.
He adds says that IRM wants to take the emphasis off the actual risk numbers to their analysis and interpretation. A monthly report will typically monitor such areas as the portfolio and benchmark absolute risk, the ex-ante tracking error, proportions of illiquid and unquoted stocks held, plus cash and equivalents.
The firm has a start-up team in London of 11. It expects client demand across Europe, particularly in the UK, Switzerland, Luxembourg and Dublin. It points to the requirements in force for new funds launched within the Ucits III framework to have effective risk management processes.
The cost of IRM’s services will depend on the number of positions and complexity of the portfolios. There is likely to be a set-up fee of around £3,000 (E4,288), with ongoing monitoring fee of between £5 to £10,000. Where attendance at monthly reporting meetings is required the fee could be £40,000 per annum.