Principia Exposes Gaps in Structured Finance Investors’ Risk Oversight as ABS and MBS Trading Increases
Two thirds of US and European investors said they had plans to re-enter the securitization market in the next 12months, but over half said they were "ineffective" at performing the necessary levels of due diligence that will be required as of January 2011.
New York, NY, November 05, 2010 --(PR.com)-- Principia Partners, the leading solution provider for the management and administration of structured finance investments, today announced the findings of its structured finance investor due diligence survey. The results highlight increasing investor and issuer confidence in securitization as an asset class, with 60% of investors stating they would increase their activity within the next 12 months. However, while trading activity is set to increase, analytical, risk oversight and operational challenges remain a major concern for financial institutions and asset managers. Investors often conceded that they were less than effective at performing the necessary level of due diligence required for continued investment in structured finance securities.
Over 500 senior securitization market participants from 200 organizations took part in the study between June and September 2010. 90% of the investors that responded stated that over the next two years their organizations had plans to implement technology to improve analytical, risk and operational processes to overcome challenges in managing ABS, MBS and structured credit investment portfolios.
Investors selected and ranked the investment analysis, risk surveillance and operational requirements they saw as most critical to compliance with regulatory due diligence requirements in the next 12 months. They also provided insight into how well they currently performed against these key criteria.
The most important objective identified by investors was timely access and effective integration of collateral pool performance data for investment and risk analysis. This was followed by the effective modeling of deal waterfall structures and cashflows for all the assets managed within a given portfolio. Although recognized as critical activities, 54% of all the investors surveyed stated that they were ineffective at accessing and monitoring performance data for the securities they held, or those they planned to invest in. This includes an inability to monitor pool performance measures that must be tracked for capital relief under the Basel II Securitization Framework Enhancements, such as delinquency, default, recovery and prepayment rates. Similarly, over 50% of investors stated that they were not effective at modeling deal structures and cashflow behavior within their systems, hindering forecasting, ongoing valuations and stress testing.
Other key findings from the survey include:
· 75% of investors ranked the consolidated risk surveillance of portfolio, deal, tranche and collateral pool performance in their top two risk management concerns. 55% stated they were not effective at addressing this concern.
· 72% of investors said they were ineffective at establishing and monitoring hard and soft triggers related to structured finance assets
· Only 35% of investors felt they effectively managed their global structured finance exposures in a single integrated environment.
“Investors are cognizant of new due diligence requirements and their need to address the shortfalls in analytical, risk management and operational practices before new rules are enforced in 2011. Even with greater issuer disclosure, understanding new deals will be an intensive task without the right tools and operations in place. Worse, it can lead to misinformed investment decisions, capital penalties or being priced out of the market altogether,” stated Douglas Long, EVP Business Strategy at Principia. “These results further validate Principia’s product development over the last two years and will help us continue to deliver the most comprehensive front to back office functionality demanded by structured finance investors.”
The results are analyzed further Principia’s new whitepaper, Structured finance perspectives: Investor due diligence comes into focus, available for download at www.ppllc.com/investorduediligence.htm
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About Principia
Principia provides financial institutions and independent managers with the most comprehensive software solution for the management of structured finance investments. Some of the best known investors in these assets use the Principia Structured Finance Platform (Principia SFP) as the operational backbone to perform thorough investment analysis, transparently manage and report ongoing risk exposures and achieve seamless operational control, all the way through to accounting.
On Principia SFP, data from external vendors can be normalized alongside internal sources in a dedicated investment management environment so portfolio managers, risk and operations staff can more consistently evaluate and manage transactions and portfolios. Operational inefficiencies and limitations associated with spreadsheets and undedicated systems are reduced by integrating these activities on a unified platform that addresses the unique challenges posed by structured finance.
Powerful analytics and the consistent integration of deal, cash-flow and performance data from the leading industry providers empowers portfolio and risk managers to better understand their investments. On an ongoing basis, users have the flexibility and control to track, analyze and evaluate risk exposures at the deal, tranche or collateral level and gain a consolidated view of risk across deals and portfolios. The fully auditable operational environment delivers a scalable infrastructure to rapidly address changing management, regulatory and accounting mandates, and ensures transparency at every stage of the portfolio lifecycle.
For 15 years, the platform has been used by global commercial banks, insurance companies and investment managers, as well as supporting off-balance sheet operations such as ABCP conduits.
Principia Partners is headquartered in New York, with a European office in the City of London and a technology center in Conshohocken, Pennsylvania.
For press information contact:
Principia
Ben Jarrold
jarrold@ppllc.com
+44 (0) 20 7618 1370
www.principiapartners.com
Over 500 senior securitization market participants from 200 organizations took part in the study between June and September 2010. 90% of the investors that responded stated that over the next two years their organizations had plans to implement technology to improve analytical, risk and operational processes to overcome challenges in managing ABS, MBS and structured credit investment portfolios.
Investors selected and ranked the investment analysis, risk surveillance and operational requirements they saw as most critical to compliance with regulatory due diligence requirements in the next 12 months. They also provided insight into how well they currently performed against these key criteria.
The most important objective identified by investors was timely access and effective integration of collateral pool performance data for investment and risk analysis. This was followed by the effective modeling of deal waterfall structures and cashflows for all the assets managed within a given portfolio. Although recognized as critical activities, 54% of all the investors surveyed stated that they were ineffective at accessing and monitoring performance data for the securities they held, or those they planned to invest in. This includes an inability to monitor pool performance measures that must be tracked for capital relief under the Basel II Securitization Framework Enhancements, such as delinquency, default, recovery and prepayment rates. Similarly, over 50% of investors stated that they were not effective at modeling deal structures and cashflow behavior within their systems, hindering forecasting, ongoing valuations and stress testing.
Other key findings from the survey include:
· 75% of investors ranked the consolidated risk surveillance of portfolio, deal, tranche and collateral pool performance in their top two risk management concerns. 55% stated they were not effective at addressing this concern.
· 72% of investors said they were ineffective at establishing and monitoring hard and soft triggers related to structured finance assets
· Only 35% of investors felt they effectively managed their global structured finance exposures in a single integrated environment.
“Investors are cognizant of new due diligence requirements and their need to address the shortfalls in analytical, risk management and operational practices before new rules are enforced in 2011. Even with greater issuer disclosure, understanding new deals will be an intensive task without the right tools and operations in place. Worse, it can lead to misinformed investment decisions, capital penalties or being priced out of the market altogether,” stated Douglas Long, EVP Business Strategy at Principia. “These results further validate Principia’s product development over the last two years and will help us continue to deliver the most comprehensive front to back office functionality demanded by structured finance investors.”
The results are analyzed further Principia’s new whitepaper, Structured finance perspectives: Investor due diligence comes into focus, available for download at www.ppllc.com/investorduediligence.htm
###
About Principia
Principia provides financial institutions and independent managers with the most comprehensive software solution for the management of structured finance investments. Some of the best known investors in these assets use the Principia Structured Finance Platform (Principia SFP) as the operational backbone to perform thorough investment analysis, transparently manage and report ongoing risk exposures and achieve seamless operational control, all the way through to accounting.
On Principia SFP, data from external vendors can be normalized alongside internal sources in a dedicated investment management environment so portfolio managers, risk and operations staff can more consistently evaluate and manage transactions and portfolios. Operational inefficiencies and limitations associated with spreadsheets and undedicated systems are reduced by integrating these activities on a unified platform that addresses the unique challenges posed by structured finance.
Powerful analytics and the consistent integration of deal, cash-flow and performance data from the leading industry providers empowers portfolio and risk managers to better understand their investments. On an ongoing basis, users have the flexibility and control to track, analyze and evaluate risk exposures at the deal, tranche or collateral level and gain a consolidated view of risk across deals and portfolios. The fully auditable operational environment delivers a scalable infrastructure to rapidly address changing management, regulatory and accounting mandates, and ensures transparency at every stage of the portfolio lifecycle.
For 15 years, the platform has been used by global commercial banks, insurance companies and investment managers, as well as supporting off-balance sheet operations such as ABCP conduits.
Principia Partners is headquartered in New York, with a European office in the City of London and a technology center in Conshohocken, Pennsylvania.
For press information contact:
Principia
Ben Jarrold
jarrold@ppllc.com
+44 (0) 20 7618 1370
www.principiapartners.com
Contact
Principia Partners LLC
Ben Jarrold
+44 207 618 1370
www.ppllc.com
Ben Jarrold
+44 207 618 1370
www.ppllc.com
Contact
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