NEW YORK -- Institutional investors will increase investment in risk management in 1998, and have increased their use of risk-adjusted returns, according to a survey conducted by Capital Market Risk Advisors Inc.
Close to 75% of survey respondents plan to increase investment in people, systems and education, the survey results show.
As part of an increased attention to risk management, pension plan sponsors have turned to custodians and investment managers to obtain needed risk data and reports, according to a CMRA summary of the survey.
Moreover, investment managers in the survey said risk questionnaires have become the norm, and requests for risk reports are up sharply.
Use of risk-adjusted returns also is up, according to the survey. More than 40% of institutional investor respondents use risk-adjusted returns, compared with 6% a year earlier.
The survey was designed to evaluate progress regarding implementation of the risk standards that were created by the Risk Standards Working Group in 1996.
Of the 42 respondents, about half were institutional investors like pension or endowment funds, 37% were investment managers, 7% were mutual fund managers, and 7% custodians.
CMRA noted it is a concern that investors do not appear to be paying close attention to model risk -- the risk that financial models will not hold up in real market conditions.
As of the end of 1997, only 22% of institutional investors evaluated and monitored their model risk, and more than 60% didn't plan to address the issue in 1998, according to the survey.
"Perhaps the high-profile model losses of 1997 and ongoing losses in Asia due to (over-reliance) on historical data will cause investors to revisit this during 1998," CMRA's summary states.
Survey results were scheduled to be posted April 15 on CMRA's web site, www.cmra.com.