Analyzing direct and indirect global networks to understand true risk exposure -- special report

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Web of Influence

The expansion of the global economy in recent decades has been underpinned by the multitude of relationships that have formed between companies at an international level. In many industries, the idea of focusing solely on local networks of consumers and suppliers has become a relic of the pre-internet age-the web has allowed businesses to leap oceans, attracting consumers and forging relationships that span the globe. A manufacturer in the UK can easily develop a US market for its products, just as a US retailer can now cost-effectively source products or services on the other side of the world.

But as these networks grow in size and complexity, what does this mean for investors? Investment companies must be able to access accurate, real-time data, not only on direct interests such as portfolio companies, but also on relevant third parties to these companies, including suppliers, consumers, and competitors. The advent of globalization in this respect also necessitates an in-depth understanding of geographical risk. For example, investing in a company with a significant stake in China requires robust methods for tracking Chinese economic data.

This report examines current risk management trends among investment companies relating to indirect relationships and geopolitics. For insight into how leading investment companies are tackling these areas of risk management, a virtual roundtable on page 8, conducted with a range of experts, outlines industry best practice in relation to managing macro and micro risks. How do leading asset managers monitor, manage and mitigate the many risks stemming from their global investment portfolios? To what extent should investment companies research the business networks of the organizations in which they hold a stake? Inside Reference Data also conducted an exclusive online survey to examine the challenges involved in finding the right tools and data to effectively monitor and mitigate these risks. Starting on page 5, the published results detail current trends in relation to country and third-party risk management.

The likely level of demand for ways to manage this type of risk-both now and in the future-is also discussed. Finally, on page 13, an article by report sponsor FactSet outlines how and why investment professionals should analyze indirect business networks in order to understand true risk exposure.

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