Northern Trust Hones Risk Reporting

Using broader and deeper analytics, Northern Trust has enhanced its ex-ante – or ‘forward looking’ – investment risk-reporting capabilities.

The enhancements were made in response to the expanding and increasingly sophisticated risk management needs of institutional investors.

Pension funds, for example, now have access to broader and deeper risk analysis, including more integration between analysis of investment risks and the impact they may have on the fund’s ability to meet its liabilities at a future point in time.

The “next-generation” risk reporting services were developed to provide clients with increased risk awareness, which will facilitate better investment decisions, according to Ian Castledine, global head of investment risk and compliance product for Northern Trust. “A key step forward has been made in bringing together the analysis of investment risks and their impact on a pension fund’s ability to meet its changing liabilities over time in a single report, rather than looking at the two dynamics in isolation,” Castledine said. The enhancements also offer clients an improved user experience with more informative graphics and intuitive visual information.”

Northern Trust’s analytics model both assets and liabilities, and the data is brought together in one report to show comparisons of risk levels and potential risk mismatch alongside the managed assets. This means that it is possible to look at how investment risks would impact funding levels and the ability of a fund to meet its liabilities over time, as well as how changes in liabilities may open up opportunities to reassess investment decisions. This aims to aid clients in making informed decisions about more sophisticated liability management solutions. Clients can see at a glance how risks compare between assets and liabilities and understand potential mismatch risks.

Enhanced active allocation and risk contribution reporting allows clients to gain a deeper insight into their exposures on an asset class, region and sector basis, or manager selection decisions, and strengthens overall risk awareness. This tool can help clients understand the risks associated with deviating from their stated target asset allocation.

Broader trend analysis offers clients greater awareness of the context in which current risks exist, facilitating enhanced risk mitigation strategies. Improved graphics enable clients to better understand historical volatility trends and how these relate to global market events and the evolving investment landscape.

“We believe that these enhancements present our analysis of essential risk information in a clear and actionable format,” Castledine said. “Equally important, our risk reports, combined with the support of one of our expert consultants, can help create an effective dialogue around the investment process facilitating discussions between asset owners and their chosen investment professionals.”