NEW YORK (HedgeWorld.com)–Deutsche Bank’s prime brokerage group plans to add another graphic representation of risk to its db RiskOffice software.
Called Risk Maps, the new software capability will provide information on overall portfolio risk exposure on a global basis. A manager will be able to edit the display of the chart to give ranges of exposures to certain regions, sectors, and positions. This is in addition to traffic lights, which show green, red or yellow giving investors an idea of how much exposure is in the portfolio.
The brainchild of Stephen G. Latham, director at Deutsche Bank Securities, global equity prime services, and his team, the new feature will be added to the software package in early 2003. The risk map feature allows for a quick daily snapshot of risk.
Also, as valuation prices continue to be scrutinized by the prime brokerage industry and regulators, Deutsche Bank prime services is looking at ways to continue to enhance the accuracy of the raw data, particularly on the valuation side. Deutsche Bank can flag a security where there is a 3% to 5% difference between an independently calculated price and the price supplied by other prime brokers or the fund’s administrator, said James Rowen, managing director, co-head equity prime services at Deutsche.
At Deutsche Bank, a lot of interest concerning risk management is coming from funds of funds because they are trying to differentiate themselves in the marketplace as well as meet the evolving requirements of institutional investors is Mr. Rowen’s theory. That differentiation comes from the level of risk each fund of funds receives from its managers and offers to investors.
Risk exposure questions and practices may be coming from elsewhere too. For example, the Securities and Exchange Commission currently seems to be paying more attention to hedge funds. Questions about risk management and transparency are bound to come to the forefront in the agency’s investigation.
“Instead of taking the ostrich approach, we can help the process in determining risk management and transparency standards,” said Mr. Rowen.
The risk management and transparency software’s functions include: measurement of VAR; a sense of a fund’s exposure to various risk factors; and an idea of the portfolio’s concentration and liquidity. Liquidity is of particular importance in light of Sept. 11, since most funds of funds want to know their exposure to a fund’s prime broker. And for obvious reasons, funds of funds don’t want all their underlying funds to use the same prime broker, according to Deutsche Bank officials.