In recent years, a growing capital flow has poured onto the financial markets by means of increasingly varied and sophisticated operations (e.g. inflation bonds, volatility bonds, equity linked bonds, credit derivatives, asset backed securities, hedge funds, commodity bonds, high yield etc…), with the aim of achieving satisfactory return levels.
Therefore investors entering the financial markets scene have to face new problems such as:
- strong growth in the level of portfolio risk;
- increased complexity of the issues dealt with.
Let us examine them.
The growth in Risk levels is mainly due to:
- higher risk of stocks and of equity funds compared to government bonds
- the use of more sophisticated financial tools where Risk is more difficult and more complex to evaluate
- the exposure to new forms of Risk like Credit Risk, Market Risk, FX Risk, Solvability Risk, Liquidity Risk, Operational Risk, Legal Risk etc...
- the volatility and instability of the markets, exacerbated by enormous speculative flows and the subsequent crashes of the stock markets.
A higher complexity due to:
- a higher number of securities differentiated by class, sector and country
- the necessity of increasing the number of external money managers, and the difficulties related to this
- the higher level of specialization of the market players who’s selection requires equally specialized systems based on robust historical data
- complex products created by financial engineering
- a greater difficulty to meet satisfactory returns and increased difficulty to improve past performances.
It is therefore in this context that the management needs to take decisions and act upon them.
Hence, it is necessary to activate new decisional and managerial models in order to face the new market conditions, and have the access to information capable to create an articulate strategic and tactical decisional process.
The activity of support and integration is developed by MangustaRisk with this point of view. We can identify among others:
- Risk measurement and risk management
- Portfolio construction
- Money managers analyses and management
- Financial product analysis and evaluation