The Waters Rankings’ market risk category is a perennially well-contested one, and this year was no different, with a staggering 22 different entries from providers large and small.
Though some might argue in a post-crisis world that credit risk has caught up to market risk in importance, many will probably still agree that this area is the most foundational of all risk management measures and as such, the bar in this category is extremely high. FinAnalytica has won the prize in 2015 for the third time in six years—a distinction it now shares with its closest rival, SunGard—and it does so for the first time since 2012.
Every firm sees market risk in a slightly different way, but it is fair to say the sell side’s requirements—monitoring value at risk (VaR), liquidity ratios, correlation coefficients, tail risk and other metrics—are relatively well-standardized, whereas a buy side’s needs tend to vary considerably depending on the strategies, fund structures, and markets it plays in.
An assessment of FinAnalytica’s work in the past year reflects this variety, as well as the layers of market complexity with which firms now expect their providers to be familiar. For example, FinAnalytica used its Cognity market risk and portfolio construction platform to run back-testing during a market sell-off in October of last year, gauging the effectiveness of conventional metrics like VaR against its proprietary “Fat Tailed VaR” when measuring downside risk during market volatility. More recently, for an extensive study published in the Journal of Indexes in February, an official at Saudi Aramco was able to use Cognity to show how replicating fund strategies using “cheaper” alternatives like ETFs is effective only when controlling excess tail loss exposure and ensuring exposure to styles stays consistent over time.
Three new Cognity implementations also demonstrate why it continues to be so popular with the buy side—its flexibility. Dallas, Tx.-based Westwood Holdings is using the market risk analytics for a focus on Ucits reporting of its global convertible securities funds; Vident Financial is working with FinAnalytica on index construction; and Verizon Communications’ investment arm is using Cognity to strengthen its risk analytics.
Market risk will always attract new tech providers. But in a time when no two projects are quite the same—indeed many are tackling highly divergent problems—FinAnalytica’s expertise and the depth of Cognity’s analytics present a strong case for sustained success going forward.
Market risk will always attract new tech providers. But in a time when no two projects are quite the same—indeed many are tackling highly divergent subjects—FinAnalytica’s expertise and the depth of Cognity’s analytics present a strong case for sustained success going forward.
It’s a trio of problems: Mifid II’s data problem; blockchain projects stalled; and data quality issues for machine learning.Subscribe to Weekly Wrap emails