The Challenges of Managing Risk

Not only has the level of global interest in Brazil been changing but the nature of the interest has been shifting as well—whereas before the interest may have been largely opportunistic , investors are now taking a closer look at the fundamental attractiveness of the Brazilian market.  In order to help move forward from the crisis and to take away important lessons learned from this period, a survey was conducted of close to 300 financial services individuals to help determine whether there currently exists any gaps between how managers and investors view the market.  The survey was focused on four key topics:

-  Corporate governance and risk management:
Close to 50% of the investors surveyed believed that change is certainly necessary in order to restore trust in the markets.  Whereas before risk management may have been considered secondary it has since transformed into a fundamental driver of a successful investment strategy.  Some areas of focus should include enhancement of visibility,  adherence to best practice codes of conduct and the installatin of independent assurance and directors. 

-  Trust in intermediaries:
The consensus from the survey was that transparency is key and that better communication of investment risk going forward is critical for restoration of trust.

-  Expected future regulation:
Some regulations that are expected to come into effect include restrictions on the shorting of shares, the implementation of better risk management and internal controls, and limitations on leverage.  The majority of the individuals surveyed agreed that a number of these policies not only should be but will be implemented.  A main source of concern, however, relates to the potential elimination of opportunities for innovation going forward.

-  Strategic importance of differentiation:
The number one factor for differentiation amongst universal as well as boutique funds was identified as transparency on products.  Other criterion include financial stability of the provider, investment performance, low fees, service quality, and personal relationships.