Operational risk top priority for Nordic funds
13 June 2008

Reducing operational risk and increasing support for new products were among the key concerns for Nordic institutional investors surveyed as part of a recent White Paper published by BNY Mellon Asset Servicing.

The research, Inside the Engine Room*, looked into the challenges facing middle and back offices of Nordic institutional investors and asset managers, and revealed that while the region represents an innovative, forward thinking market in terms of its investment strategies, there is still some way to go when it comes to quantifying and measuring operational risk.

Sid Newby, head of business development for the Nordics, BNY Mellon told European Pensions: “If you look over the last few years, asset allocation in the Nordic region has been diverse – institutional investors have embraced alternatives including private equity, hedge funds, real estate and infrastructure, and with this study we wanted to assess how the back and middle offices of these organisations were coping with that investment innovation.”

Operational risk was highlighted as the biggest priority for respondents which, added Newby, was no surprise; “but one of our observations was also that because they had gone through such growth in the business phase of operations there was still work that needed to be done in terms of quantifying and measuring this operational risk.”

Another big challenge for the middle and back offices as highlighted by the report was attracting and retaining talent. Newby continued: “Talent was recognised as a major challenges, but there were also stark differences in the ways institutions were fulfilling their talent requirements - what level of education they were looking for and how they stimulated and retained their employees, for example; so there was quite a diverse split in what they felt the key drivers were for keeping talent in-house.”

Other key findings of the report were that cost reduction, improved client service and generating additional revenues were seen as less pressing concerns. Newby concluded: “We were a little surprised that keeping costs down came so low on the list of priorities, as in other jurisdictions it is possibly more of a priority, but we are talking about middle and back offices which are fairly efficient so maybe they feel they already have their costs under control.”

* A copy of the White Paper, Inside the Engine Room: A perspective on challenges and opportunities in the middle and back office of Nordic institutional investors and asset managers, can be found here.