Kinetic Partners has added a new face to its team, ex-RBS Portfolio Risk Services MD Christian Szylar, to lead the vendor’s efforts in the risk modelling and valuations space. The vendor has been stepping up its approach to the market by touting its modular approach to risk management as a more practical way to meet new regulatory requirements, such as those under UCITS IV, and is hopeful that Szylar will boost its chances of success.
Szylar joined Kinetic as a project leader last year from RBS’ Luxembourg operations where he was managing director of RBS Portfolio Risk Services. He has been a vocal member of the risk management community for around 15 years and has often spoken at events on the subject of risk modelling and measurement.
“We are looking at the hedge fund industry as a growth market at the moment for risk management and reporting services, as they are under regulatory pressure to provide more transparency into their practices,” says Szylar. “This community has displayed particular interest in our liquidity risk and OTC valuations modules thus far.”
The vendor offers a single risk engine solution, broken down into seven specific modules covering: performance measurement analysis, performance attribution, independent OTC valuation, compliance with investment limits, liquidity risk, counterparty risk and market risk. The developments around UCITS compliance have therefore had a significant impact on take-up of the vendor’s compliance with investment limits offering, says Szylar, and this is set to continue with the push for hedge funds to structure themselves like UCITS.
In light of the financial crisis, the area of liquidity risk modelling is also a key one for investment in the current market. “The limitations of the models used to assess liquidity risk up until now have become evident and the regulators have stepped in to ensure that this is tackled,” he explains.
To assist in this endeavour, Kinetic Partners has developed a two tier approach to liquidity risk, he continues. The first is a more traditional single approach based on historical data such as evaluated prices, where liquidity risk is determined by historical models. The second, however, is focused on the future and involves stress testing of various scenarios such as market spreads and other factors. “The use of this combined approach to liquidity risk allows for a better way for funds to manage their portfolios,” he says.
The incoming European directive for hedge funds as it currently stands will also require these funds to monitor their own liquidity risk exposure more closely, as well as factors such as counterparty risk and valuations transparency. The vendor is therefore hoping to gain much more traction with this community as it endeavours to revamp its infrastructure to meet these new requirements.
Kinetic Partners’ risk engine is an outsourced option for these funds to allow them to concentrate on their core business rather than being held back by operating requirements. The rollout of various modules therefore takes less than a month and is even quicker if a fund’s fund administrator is using the system, says Szylar. “In terms of risk measurement of areas such as market risk, we have also focused on providing key risk indicators rather than too much information. Too much information can kill the value of that information,” he adds.
The idea of having all of these various risk modules on the same platform is also in line with the regulatory agenda of a more enterprise approach to risk management, he says. “Usually functions such as market risk and performance measurement are calculated on different engines and held on separate siloed systems, but we have all of this on the same platform,” continues Szylar.
In terms of global expansion, the vendor is looking to gain more traction in the UK and US markets. Szylar describes the potential of the US market as “amazing” and notes that 46% of UCITS funds are sold outside of Europe. “UCITS funds provide a great way for US-based investors to get into emerging markets such as Asia and South America,” he says.