A comprehensive global study, "The Crowded Trade", commissioned by Clearwater Analytics, which surveyed 250 senior executives at fund managers across the U.S, Europe and the Asia-Pacific region, finds credit and liquidity risks across nearly every category firms track.
Market risk has increased for 80% of asset managers over the past year, the largest rise of any risk category in the study, with 34% describing the increase as dramatic.
Around three-quarters (77%) of respondents say credit risk has increased, with 51% saying it has done so dramatically.
Some 71% of asset managers have experienced increases in liquidity risk, and 36% say those increases have been dramatic.
Meanwhile, 71% say concentration risk has increased with 29% saying it has been dramatic.
Chris Sturhahn, Head of Product, Asset Management at Clearwater Analytics, said:
“Market, credit, liquidity, and concentration risk are all rising at nearly every firm that responded. That's a harder problem than any one risk moving by itself, and it's a big part of why we're seeing firms shift into alternatives, expand hedging, and rotate into new markets and regions. Asset managers need more than performance data and they need real-time visibility into risk exposures, liquidity conditions and portfolio concentrations. Firms that can aggregate, analyze, and act on investment data quickly will be far better positioned to manage uncertainty and respond to changing market conditions.”
Looking across their operations, nearly three-quarters (73%) of asset managers say technology and cyber risk has increased, with half saying it has done so dramatically. Business continuity risk has increased for 80% of firms, with 32% calling the increase dramatic. People and process failures, such as errors in trade execution or inadequate internal controls, have increased for 75% of firms, with 24% calling the increase dramatic.
Sturhahn said: “Operational risk has become a major focus for asset managers as portfolios grow more complex, reporting requirements intensify and market events unfold much more quickly. Many firms still rely on fragmented systems, manual reconciliations and delayed reporting processes that can create inefficiencies and increase the potential for errors during periods of market stress.”
Reputational risk, meaning damage to a firm's brand from negative media, legal disputes, or poor performance that drives investor outflows, has increased for 69% of firms over the past 12 months, with 44% calling the increase dramatic.
ESG risk, meaning potential losses from investments failing to meet environmental, social, or governance standards, has increased for 77% of firms, with 31% calling the increase dramatic.
Competition risk, meaning the risk of losing market share to competitors due to poor performance or high fees, has increased for 72% of firms, with 24% calling the increase dramatic.
When asked which risks pose the greatest concern to asset managers over the next 12 months, almost two-thirds (62%) of research participants say technology/cyber risk. The next highest risk was liquidity risk (47%) closely followed by credit risk (46%). More than a third (37%) identified concentration risk as the biggest threat in the coming year, while 35% say people and process failures and 28% say market risk.
Sturhahn added: “Firms are already responding to this, moving into alternatives, expanding hedging, and rotating into new regions and asset classes. The next question is whether those moves hold up once markets are actually tested, which is exactly what we look at next in this research.”
The full findings of the "The Crowded Trade" study are available at https://cwan.com/resources/reports/the-crowded-trade-global-asset-manager-report/
