Peter Jeffreys, co-founder of S & P acquisition Fund Research Limited, and Yves de Naurois, formerly Head of Global Investment Process at Citibank Private Bank in Geneva and Luxembourg have launched a new venture – Independent Risk Monitoring Limited – to cut risk management costs and improve the effectiveness of portfolio monitoring by asset management companies, including mutual funds.
Independent Risk Monitoring Limited will monitor a portfolio’s adherence to its declared investment mandate, benchmark and risk profile. For mutual funds, Independent Risk Monitoring Limited will ensure that UCITS III regulatory guidelines are met with respect to risk management. These include the mandatory introduction of a dedicated risk management process to enable managers and directors of UCITS III regulated funds to monitor and measure the risk profile of portfolios at all times.
The founders say the service has equal application for the managers of segregated portfolios and will provide an additional, independent layer of comfort and reassurance for directors, trustees and guardians of such portfolios where a risk management process is already in place.
“Independent Risk Monitoring Limited believes that regardless of the diversity and uniqueness of each portfolio manager’s style, a best-practice oversight standard – anchored in in-depth appreciation of the risk management process – will emerge as a consequence of increasing regulatory pressure,” says Yves de Naurois, Managing Director. “Independent Risk Monitoring Limited service will provide a highly cost-effective solution for this increasingly complex challenge and will complement existing risk management processes by improving the identification of a portfolio’s divergence from either mandate or benchmark.”
“Independent Risk Monitoring Limited will provide qualitative analysis on top of a quantitative, exception-based analytical process,” explains director Peter Jeffreys. “We have developed a proprietary exception-based process which provides daily monitoring of all portfolio constituents and immediate identification of major risk violations. It also detects any significant change in investment approach.”
In addition to Yves de Naurois and Peter Jeffreys, Independent Risk Monitoring Limited’s founding directors are; Norman Riddell, Chairman (non-executive), CEO of Norman Riddell & Associates, and formerly CEO of Invesco Europe; and Colin Morrison, Director (non-executive), Head of Performance & Risk Measurement at Standard Life Investments, and member of the IMA working party on Performance & Risk Measurement.
The new UCITS III regulations have imposed additional responsibilities on asset management companies with respect to their role of monitoring activities delegated to portfolio managers. For any fund seeking “European Passport” to permit distribution within the EEC, fund management activities must, in future, be conducted by two managers, defined within the regulations as “reputable” managers, able to demonstrate competence with regard to the types of portfolios managed. Moreover, asset management companies must have, and demonstrate effective use of, the necessary resources and processes for the proper performance of their activities, with an emphasis on risk management. These regulations come into effect on 1st February 2004 for all new funds, seeking “European Passport”, while existing funds will be “grand-fathered” until 2007.