Buy-Side Technology Awards 2014: Best Buy-Side Risk Management Initiative Over the Last 12 Months—StatPro

In some ways, StatPro’s project reflects a broader tack it has taken in the past year, going beyond fund managers themselves to fund services providers like Maitland and Capita Asset Services. Always focused on the value of data sharing in its cloud-based Revolution, StatPro resolved to take this mantra one step further, while solving a potentially tricky regulatory need. The outcome was a new risk module that calculates “commitment exposure” of a portfolio of complex instruments, as newly required under AIFMD.

The “commitment” approach demands that the net exposure of derivatives cannot exceed 100 percent of the fund’s net-asset value (NAV); in other words, it is always the market value of the equivalent position in the underlying asset. Whereas managers previously used this approach only for simple portfolios, while sticking with well-known, probability-based value-at-risk (VaR) metrics for the rest, alternative investment fund managers (AIFMs) under the new rules—which also align with those for Ucits fund structures—will no longer have the option to do so. They therefore need option-adjusted exposure, hedging, and netting all calculated and easily accessible.

While sounding straightforward—replace one formula for another—accomplishing this on a technical level is fraught because it requires a number of disparate data elements to be pulled together in just the right way. Calculations for commitment leverage after foreign exchange (FX) netting, interest-rate duration netting, and exclusions; the market risk profile for AIFMD Annex IV’s reporting template; deltas, time to maturity, and equivalent underlying asset position numbers; and automatic flagging and decision override are all new features of StatPro’s module. New stress-tests for portfolio target duration and time to liquidate have also been added, as have audits and the ability to assign user-specific access to all of these workflows, including directly with regulators.

Sure, solving this niche problem may not be the first thing that comes to mind when one thinks of StatPro; nevertheless, it has the company’s proactive fingerprints all over it—and any buy-side firm operating in Europe will appreciate that.