BNPP: what’s next in risk management for asset owners? Its a Big Data problem.

BNP Paribas released a survey of asset owners and risk management last week. We read from back to front for what asset owners expect will be the next phase of innovation in risk management, whether they like it or not. The answers come back to Big Data and data management, but who will provide the right intelligence?

Risk management is no easy topic to sort out, and the need for effective risk tools in only getting more complicated. According to the BNPP survey, 59% of owners think that the risk management will become more complex and 23% see this as the biggest challenge for their organization. That ranks as the biggest thought bubble in risk on asset owners’ collective minds. The complexity is both internal and external, and while owners are comfortable about their abilities to manage selected risks – operations and counterparties, for example – they are less confident about market and liquidity risk.

The graphic below shows the survey results on what happens next for risk management.

BNPP Asset Owner Risk Survey 2015 What's Next

We are particularly interested in the idea of tools that aggregate all aspects of risk. Is it possible to have one round number that assesses all forms of risk for an investment or market? Probably not, but its a great sound bite. More realistically, asset owners and their service providers will continue to get their arms around the huge quantities of data being produced and reduce the information into manageable chunks for risk management purposes. Asset owners and service providers recognize the challenge.

We see the missing link here as who provides the critical intelligence behind the data to make it actionable. There are plenty of smart people at custodians, asset owners and third party service providers. The problem is working together to create metrics that mean something and that can measure risk after, during and (with luck) before a crisis becomes acute. This is the end game of risk management not just for asset owners but in general. We’re not there yet. The survey does a good job of defining the needs of asset managers though, and we look forward to seeing what new products emerge to meet aggregate the data and say something meaningful.

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