Asset managers often find it challenging to achieve consistency in their investment compliance programs. However, since they are crucial for maintaining compliance with regulatory mandates and regimes, it becomes essential for asset managers to employ robust investment monitoring and compliance tools. It helps them establish, maintain, and execute compliance with these regulations, keeping them aligned with the client, regulatory, risk-sourced, and contractual investment limitations.
Read on to find out how investment compliance solutions help in asset allocation and issuer concentration.
What do Investment Compliance Services do?
Investment compliance solution providers assist asset managers in enhancing efficiency in their compliance monitoring services. They help their clients analyze contracts for source documentation, including investment prospectuses and guidelines. It helps them capture, test, code, and identify investment limitations within the compliance system.
Additionally, they assist clients in planning and implementing an operating model. Based on this information, asset managers can select and optimize their compliance systems aligning with the industrial practices. As a result, they can allocate assets in the right direction while maintaining issuer concentration.
Asset Allocation with Investment Compliance
The asset allocation investment strategy aims to balance an investment’s rewards and risks. It does that by apportioning the assets in a portfolio according to the investor’s investment scope, goals, and risk tolerance.
Three primary asset types: fixed income, cash, and equities, have varied risk and return levels. So, each behaves differently with time. It is one of the most significant decisions an investor needs to make, as stocks, cash, and bonds are the primary assets to allocate. This is where investment compliance solutions help an asset manager select the right asset and decide how much to invest in it and for how long.
Issuer Concentration with Investment Compliance
Regarding position, issuer concentration is the amount equivalent to the quotient of issuer exposure and total issuer exposures in an investment portfolio. Often expressed in percentage, it does not include US treasury securities to calculate issuer concentration. It also refers to the gross market value of all debts, equities, and other positions the same issuer issues, divided by the gross market value of the portfolio.
Investment compliance helps identify the potential risk of value loss in an investment portfolio when it moves in an unpleasant direction. In most cases, issuer concentration risk generates a significant loss unlikely to recover.
How do Investment Compliance Solutions work?
As governments become stricter on investment regulations, ensuring compliance and staying updated with the changes becomes more critical. Investment compliance solution providers aim to objectively and quickly analyze whether an investor meets specific guidelines, industrial regulations, and requirements. From simple needs to complex quantitative processes, the portfolio must comply with the documented limitations and restrictions across asset classes. These solution providers actively monitor the investments and ensure compliance with management policies.
Apart from asset allocation and issuer concentration, investment compliance solutions also include monitoring credit quality, testing derivatives, tracking errors, and following restrictions. They stay updated with the investment rules, quality ratings, industry regulations, and corporate governance requirements to customize oversight and avoid complications.
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