Third party ManCo risk

Risk special
Third party ManCos haven’t been tested in periods of real market turbulence or sustained downturns. Most of their funds have prospered during the last decade. What challenges would third party ManCos face in a bear market?

Their biggest test would be their risk oversight functionality. How durable would it be at a time of real stress? Should a lot of the funds that ManCos host run into problems around the same time it would be pressure on their risk management capabilities. It might also call into question whether they all have the people with the requisite skills and experience doing the risk
job – particularly at ManCos hosting funds with complex alternative strategies.

The risk oversight function is a hugely important part of what a third party ManCo does – perhaps the most important part, at least in the eyes of regulators.

To read more on this story, see the October issue of The NED.