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Hedge Fund Survey by CarbonBased Consulting in 2003

Hedge Fund Survey by CarbonBased Consulting in 2003 . Background ( http://www.buysidetech.com/news_sep.htm) 400 responses from 300 companies Respondents from Europe (50%), APAC (20%), US (19%) and RoW (11%)

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Hedge Fund Survey by CarbonBased Consulting in 2003

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  1. Hedge Fund Survey by CarbonBased Consulting in 2003 • Background(http://www.buysidetech.com/news_sep.htm) • 400 responses from 300 companies • Respondents from Europe (50%), APAC (20%), US (19%) and RoW (11%) • SURVEY REVEALS 90% OF FINANCIAL INSTITUTIONS SUFFER LOSS DUE TO POOR OPERATIONAL RISK MANAGEMENT

  2. Operational Risk Policies • Key drivers behind adopting an ORM are regulatory pressures such as Basel ll and Sarbanes-Oxley. Internal best practice benchmarking exercises and concern over levels of internal losses are also key factors • 19% of companies surveyed had no OR policies currently in place. 43% had implemented an ORM within the last two years • IT systems failure and regulatory/compliance risks were seen as the most important risks to be dealt with. Few respondents saw key person retention as important

  3. Losses • 21% of respondents expect to suffer a $10K - $100K loss at least once a day • 93% had experienced a $10 million+ loss each year

  4. Costs of Benefits of Risk Mgt Spending • 33% of respondents said their firm would spend >$1 million this year on improving op risk measurement • 29% believed spending in this area would be up by over 100% this year over last year • Benefits • Reduction in operational losses seen as the key benefit. Improved performance measurement also seen as important • 36% of respondents expected to see an op risk economic capital decline of more that 20% this year • 49% expected operational losses to decline between 10% and 25% over the same period 32% expected to see revenues rise by more that 20% as a result of increased operational efficiency

  5. Operational Risk Management Structure • Just over 20% of respondents have an ops risk committee supplemented by op risk managers at the business unit level • 14% have no framework in place at all • Ops risk teams remain small - 60% have a team of between 1 and 5 people • 48% did not believe the size of the team would increase in the next 12 months

  6. Technology Infrastructure • Internal loss databases (48%), self assessment tools (46%) and internal reporting tools (44%) are the most commonly implemented technologies either already implemented or currently being implemented • Less than 20% have a statistical modeling tool or AI/expert systems modeling tool in place • 68% of respondents are choosing to build at least one ops risk system in house (cost and lack of functionality are the most commonly cited reasons) • 48% are planning to implement one of the advanced measurement approaches listed under the Basel II document

  7. Obstacles to ops risk management • 4 of the top 5 obstacles cited are issues with data (modeling ops risk, collating sufficient volume, mixing qualitative and quantitative data and ensuring quality of data used).

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