Helping providers meet clients’ risk needs
An interesting aspect of the financial upheavals of the past three years has been a change of perspective on the part of service providers that until recently had no interest in or understanding of the fact they needed to be in the risk reporting business. But in the past year or so, the knock-on effects of the financial crisis have alerted everyone in the hedge fund industry from investors to fund managers as well as prime brokers and other counterparties to the fact that risk management is not just important but vital, and that they all need some sort of methodology in place.
The service providers that Portfolio Science works with have not traditionally thought of themselves as being in the risk business, but they now recognise their need to be able to offer these kinds of functionalities. We are very well positioned to help such firms because we provide risk tools not only directly to end-clients but also via the enterprise-wide solution RiskAPI, a service-driven offering specifically designed to be private-labelled and wrapped within other application frameworks.
Other providers of risk tools focus largely on direct sales of a branded application, designed according to their own criteria with a proprietary look and feel. By contrast, Portfolio Science is bringing risk tools to a broader range of investment industry players than ever before through a standardised, networked application programming interface.
We provide a completely flexible, extensible, customisable tool set that an individual fund manager or a service provider can connect to via their front- or back-end systems and whose functionalities can be utilised within their own execution or reporting environment. This requires different priorities as vendor than showcasing your own brand, but Portfolio Science has concluded that what matters is delivering the back-end infrastructural DNA behind the risk services that service providers offer to hedge funds.
Using RiskAPI rather than a stand-alone desktop application or web site allows users to access risk exposure calculations through standard operating environments, connecting securely over the internet to a risk engine running on our servers. The software API contains a collection of individual risk calculations to which the user supplies parameters; the API communicates these securely over the network to the risk engine, which runs them through all its resources and delivers the result.
Fund administrators take position and trade data on a daily basis and compile reports including trade positions, NAV and P&L, and integrate the API within their reporting framework. They feed in position data to determine metrics such as value at risk and correlation, and disseminate the results to their hedge fund clients through existing reports, a secure web site or e-mail.
Portfolio Science has recently extended its offering through an agreement with PortfolioShop, a software vendor that provides reporting infrastructure to fund administrators and prime brokers, and which has decided to offer risk reporting to service providers in response to their feedback on the services they need to offer their own clients in the new market environment.
PortfolioShop can now offer a complete suite of risk reporting tools to fund administrators and prime brokers in addition to the original features in its application. Thanks to this single integration, all the firm’s fund administrator and prime broker clients can offer risk reporting to their own fund clients. In this way, Portfolio Science’s API approach is able to bring risk capabilities to a substantial new part of the market.
Ittai Korin is president of Portfolio Science
Please click here to access the Hedgeweek Special Report on Hedge Fund Risk 2010