(Pictured: Denis Carroll)
CheckRisk, the UK-based risk consultancy, has launched a new service for institutional investors, including Australian super funds, which aims to simplify the complexity of investment risk.
Called the ‘total risk monitoring system’ (TRMS), the service consists of four modules developed with the assistance of academic research at the UK universities of Bristol and Bath, who also provided other input and validations. Nick Bullman, the company’s chairman and founder, lives in Bath and has strong personal as well as professional links to the universities.
The modules are: portfolio risk monitoring system; risk-adjusted asset model; fund manager risk monitoring; and, macro risk decomposition overlay. So, it’s not exactly ‘Risk for Dummies’.
Denis Carroll, the Sydney-based global chief executive, said the TRMS would answer most of the questions that super funds had put to him concerning ways to use the CheckRisk information and advice.
“For example,” he said, “we now have a module which employs a customizable reference portfolio built entirely from a risk basis, which can be compared with investors’ live portfolios. This enables them to question and test their own portfolio allocations and facilitates a better understanding of risk within their investment strategies.”
While super funds have had a strong focus on risk since the global financial crisis, the specialist risk firms and broader asset consulting firms addressing the subject still struggle to be sufficiently remunerated for their efforts without building funds which replicate their ideas. It’s difficult to clip the ticket on the results from a fund reducing its bond exposure by 10 per cent, for instance. With the TRMS, at least funds will be able to readily measure the results that all the risk inputs would have had on their investment outcomes.
Carroll said: “Our focus is purely on risk and whether investors are being sufficiently rewarded for the risk taken. At a time when the provision of global liquidity is about to slow down, investors need to be aware of that risk.”
He said super funds have had a great ride in Australia over the last couple of years and with the conditions starting to emerge globally, they needed to start thinking about putting risk strategies in place to protect those returns.
The TRMS provides a good sense of the best risk-adjusted opportunities in the market at any point in time and where their portfolio sits from a risk perspective.
Bullman says that CheckRisk looks to provide a forward-looking approach to risk, which sets it apart from traditional work on the subject.
“What is important for investors to realize is that if you don’t have positional awareness from a risk perspective and therefore know where you are in the investment cycle, then there is a very good chance you may make the wrong asset allocation decisions,” he says.