Finadium Research Report

Liquidity Risk Management for Asset Managers, Hedge Funds and Pension Plans

October 2010

Regional Focus: US, Europe

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Liquidity risk management is evolving quickly, and it is capturing in its path not only banks and insurance companies but also asset managers, hedge funds and pension plans. As a group, asset holders are just now beginning to incorporate liquidity risk management techniques into their regulatory and internal reporting. They are also beginning to recognize the value that liquidity metrics add to their portfolio management, sales and client relationship management activities.

Globally, regulators and industry working groups are looking to understand and reduce the liquidity funding risk and liquidity market risk of investments. While banks and insurance companies are the regulators’ primary target, asset management subsidiaries are directly affected. Forward thinking asset managers, hedge funds and pension plans, particularly those with an existing culture of strong risk management, are incorporating an important combination of technology and processes to manage these risks as well.

A new range of technologies have emerged to meet the needs of asset holders in liquidity risk management. As befits a new market, these solutions look to solve different goals depending on their target client base. This report identifies three early movers with the expectation that another four or five vendors will launch solutions in the next year.

Every individual asset holder, whether asset manager, hedge fund or pension plan, will have different needs for managing liquidity funding risk and liquidity market risk. Driven by local regulations and global competition, firms must identify how a mix of regulatory reporting requirements and internal requirements can be met not only by vendor or internal solutions, but also by creating the processes that make liquidity risk management calculations meaningful to the management of assets.

This report should be read by portfolio and risk managers at asset managers, hedge funds and pension plan sponsors. It will also prove useful to custodians, prime brokers, technology firms and investment consultants looking to provide technology or services for liquidity risk management to their asset holder clients.

This report is 30 pages with 7 exhibits.

■ Executive Summary

■ Not Just for Banks and Insurance Companies

■ Funding Risk, Market Risk and What Asset Holders Really Need

■ Regulatory Initiatives on Liquidity Risk
– Developments in Europe
– Developments in the U.S.

■ Technology Vendors in Liquidity Management for Asset Holders
– Vendor Profiles

■ New Roles for Banks and Technology Vendors

■ Recommendations for Asset Holders and Their Service Providers

■ About the Author

■ About Finadium


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