27 Percent Of Investment Managers Predict Significant Impact of Collateral Requirements on Their Business, Says Research

27% of investment managers surveyed by Investit’s intelligence research service say they are planning for a “significant impact” of the new collateral requirements on their business, while 27% foresee no impact.

Of the rest of the firms, 27% felt it is too early to tell, while 19% expect “limited impact.”

Investit said that with the degree of change required by the pending regulations and its impact on risk decisions, it expected more survey respondents to say the requirements would have a significant impact.

As Dodd-Frank Title VII and EMIR are implemented, investment managers will have to factor in the additional collateral requirements when making investment decisions. According to research conducted by Investit on the topic of collateral management, 41% of firms have or are implementing cost modeling structures to assess the cost of OTC derivatives to the portfolio, and another 42% of firms have plans to implement cost models in the next 12 months.

Investit found that, to avoid the problem entirely, investment managers with low volumes of OTC derivatives in their portfolios are opting to eliminate or reduce their hedge (imperfect hedge), or shift to new risk hedging techniques such as swap-based futures in order to avoid the regulatory driven costs and operational headaches. “This may in some cases lead to investment managers using less regulated securities in order to achieve the same objectives,” says Investit. “However, this can only be a short-term fix, as it is only a matter of time before more regulation blocks these “solutions.”