55% of Institutional Investors Don’t Have Risk Measurement Systems

Institutional investors are looking for better risk models for investments and overall management, Northern Trust found. Ninety percent of those surveyed rated risk as an “important” or “primary” consideration in their decision making.

Nonetheless, a full 55% do not have a risk measurement system, and 87% said their organization needs more skills and experience to use sophisticated risk models.

Asked to rate various forms of portfolio risk, they said that market volatility is the greatest source of risk, followed by liquidity risk, cited by 17%. Related to that, 45% said better valuation and risk models could have predicted the liquidity risk of the past 12 months.

“Institutional investors are telling us they want valuation model transparent, and they appreciate practical experience in using risk models,” said Paul d'Ouville, head of the information services global product management group at Northern Trust.