Boosting risk management in private equity through asset servicing

Among the lessons of the 2008 financial crisis is the importance of conducting regular and comprehensive risk assessment. Private equity, in particular, demands foresight when it comes to seeing what short-, medium- and long-term factors are bound to affect the performance of ventures that an asset management firm decides to invest in. The goal is not to eliminate risks. Instead, industry pundits explain that risks are inherent in private equity, and they bring value to the investments. Because of this, the approach of smart asset managers is to make these risks work for the fund, through a host of strategies and tactics. Key to this approach is taking risk into account from the very start, and within the entire range of the private equity firm’s operations. An understanding must be reached regarding the framework for risk measurement, the measures to take at critical times, and who is in charge. Furthermore, top executives need to confront these pertinent questions: What organizational structure is best given the set of risks that will be faced? What kind of investment decisions are allowable at any given time? What are the standards to observe regarding the making of such decisions? Who is allowed to change the rules? When do these rules become the subject of a review? Risk management would also entail constant monitoring of information across all markets that is bound to impact on a private equity firm’s operations, as well as conducting analysis of these potential impacts. This would include the observation of day-to-day transactions, and the conduct of modelling based on emerging trends in the finance industry as well as breakthrough events, to predict the performance of the funds under the firm’s management. Performing all these tasks can put a lot of pressure on any private equity firm’s operations. After all, to accomplish these functions, managers need the dedicated manpower and technologies for the consistent data monitoring, warehousing, and analysis that effective risk management requires.And to be a step ahead of the competition, they need not just any staff and tools, but the best professionals in the domain, and the latest equipment and software solutions. Thankfully, they can now receive invaluable help from the best of today’s asset servicing firms. These asset servicing firms possess the expertise, the innovations, and the pool of talent needed to efficiently handle risk management, among other tedious functions in the middle and back office operations.