Under the Alternative Investment Fund Managers Directive (AIFMD), a solid risk management system that can identify, monitor and manage all risks pertinent to the AIF’s investment strategy is becoming the new norm. You can gain significant improvements in risk management and generally bring more added-value services through digital tools. Find out how !
In a world characterised by increasing information intensity, extreme transparency and hyper-connectivity, technology has emerged as the answer. As the risk management function moved centre stage, technology has enabled to perform multiple, complex analyses on the fly.
Regulation as a major driver in the evolution of risk management
How AIFMD affected risk management
With the AIFMD, a strong independent risk management function has emerged. Risk managers are no longer part of operational units to allow an independent performance of risk management activities. When it comes to the job, professionals have to, at least, to identify, measure, monitor and manage markets, credit, liquidity, counter-party and operational risks, both now and in the future. In addition, they have to carry out stress test scenario on all of the above tasks throughout the fund life cycle.
The mandatory Annex IV reporting requirements have strengthened this regulatory framework. Indeed, managers have to provide a detailed breakdown of their risk on a quarterly to yearly basis (according to AIFs Assets under Management) in the form of an XML file. In short, regulators want to upgrade the risk analysis capabilities of an Alternative Investments Fund Manager. A clear corporate commitment is thus required.
Risk managers have to
- define a data vision,
- upgrade risk data,
- establish robust data governance,
- enhance data quality and metadata,
- build the right data architecture, and
- get data instantly.
This context provided the backdrop for Domos FS to come up with its complete web solution. The overarching goal is to raise risk management awareness internally by enriching data and models that add value to analyses. While Domos Legal Module allows to perform Annex IV reporting, the Risk dedicated Module provides a comprehensive solution to risk – from monitoring to reporting through stress-testing. DOMOS has met the data collection challenge by developing as an underlying tool to all these modules the “data strategy” – a set of productivity tools and algorithms that facilitate data upload in the platform.
What dimension Risk Management takes under the CSSF Circular 18/698
In 2018, the CSSF issued Circular 18/698 addressed to Luxembourg based Investment Fund Managers setting out prescriptive guidance on organisation, operations, substance, management information systems and regulatory reporting. As far as risk management is concerned, the Circular provides a risk based approach to the ongoing monitoring of delegates, the definition of robust KPIs by the Manager, and a pre-deal risk management analysis. Additionally, it includes portfolio management, risk management, and compliance, to name but a few, as delegating functions and specific conditions. More specifically, the Circular provides guidance for AIFMs on the format and content of the Risk Management Process annual document. By and large, this Circular shows how strategic the function of risk management has become.
With this in mind, Domos FS designed pre-deal risk analyses and benchmarking solutions. By getting relevant data, you can gain further understanding of the risks associated with a real-asset, whether it is in Private Equity, Real-Estate, Debt of Infrastructure.
Regulatory pressure is surely growing stronger and with it there is an increased need for trust. We can’t predict regulation, but we expect a drive for always more transparency.
Hyper-connected investors demand for transparency
The risk management function has significantly expanded. One of the reasons is to cater for investors demands for transparency. Increased frequency of reporting on the risks that any fund takes has been an answer. These demands relate not only to market risk but also to counterpart risk and the investors aggregate exposure over all their investments. As institutional investors’ appetite for alternative asset classes is growing, they are pushing for more professional, independent and transparent risk management.
People, organisations and objects are increasingly inter-connected. That’s the result of the internet, mobile technology and the Internet of Things. According to Ericsson forecast, there will be 29 billion connected devices on the planet by 2022. This hyper-connectivity is supercharging the pace at which we do everything, including investment data. The impact of hyper-connectivity is one of immediacy, investors expect fund managers to give instant information.
In this framework, risk managers need to get rapid access to data to dedicate their time to risk analyses. It is all the more important as risk managers have to perform quarterly reporting. In fact, risk managers often have to perform this analytical process within two days on the basis of complex non-standardised data. As a result specialised software turn out to be efficient tools to deal with this compliance process.
DOMOS is integrating features that facilitate data exchange with investors. From a risk report or an investor report to input by third party directly into the platform, your data is strategic. You can also manage compliance risks like AML/KYC. How ? By integrating directly relevant documents into the platform or effectively perform oversight duties over delegated functions with the due diligence features of this web-solution.
In the future, risk management will be an agile function. It will relieve cost pressures, navigate complex regulatory environments with ease, and contribute to full transparency. Make the first steps towards that future today.
Find out how Domos FS risk module can turn your data into strategic risk management tools.