Investors rank risk management on par with performance

Investors consider transparency and risk management to be just as important as performance when deciding whether to retain their managers of alternative investments, according to a PricewaterhouseCoopers (PwC) report.
A global survey of 226 institutional investors and alternative investment providers found the quality of compliance and risk management process (41% of investors) and transparency (41% of investors) rated higher than performance (40% of investors) among the criteria for deselecting investment, a PwC release says.
Despite this, investors have been slow to adapt risk assessment processes. More than half (53%) say they have made no change to their risk management policies despite an increased allocation to alternatives, it adds.
The study, which covers hedge funds, private equity, real estate and infrastructure funds, also reveals a gap in perceptions between investors and providers.
Investment firms largely believe they are good at managing risk. They rate themselves ‘effective’ in the accounting and reporting of transactions (67%) and policies to protect against fraud (65%), PwC reports.
Investors largely disagree just 18% of hedge fund investors think valuation policies are effective and only 16% think IT security is good.
The report also found investors rate North American alternative investment firms more highly than those of other countries for the quality of their governance, risk management reporting and levels of transparency.
“Our findings back up the belief that when returns start to moderate investors focus more intently on operational infrastructure,” said Raj Kothari, PwC partner and leader of the Canadian investment management practice. “Indeed the survey shows that this is a key ingredient and not just an element in keeping alternatives in their portfolios in a subdued environment.”