Raj Verma, Founder& CEOToday, the wealth and asset management industry is undergoing a disruptive transformation driven by passive and factor-based investment products such as Exchange Traded Funds (ETFs), increased transparency of advisory fees, and a desire for personalized benchmarks (goal-based investment strategies). This technology-driven shift from traditional investment management products that focused on the outperformance of standard benchmarks has resulted in the emergence of the so-called Robo- Advisors. The Robo-Advisors leverage digital wealth management platforms to provide a meaningful goal-based dialog with individual investors that align advanced asset allocation advice and risk-reward trade-offs with investors’ personal and lifestyle goals. "However, the existing Robo-Advisor technology is based primarily on Markowitz Modern Portfolio Theory which lacks the capability to provide fully personalized investment advice incorporating investor goals over multi-time periods and scenario-based risk tolerances," points out Raj Verma, Founder and CEO of RiskGrid Technologies. Going beyond Markowitz mean-variance solutions which focus on maximizing returns for a given level of risk using historical asset returns and correlations, Ontario-based RiskGrid Technologies has adopted a more advanced approach pioneered by IBM/Algorithmics which combines integrated risk architecture with scenario-based optimization technology.
According to Verma, “Scenario-based optimization allows wealth managers to construct investment portfolios which consider multiple future scenarios and check whether the investment strategies align with the investors' goals with minimal risk across these scenarios.” RiskGrid uses risk management techniques such as Monte-Carlo simulations wherein the portfolio construction methodology and reinvestment strategies for aging portfolios can be simulated with scenarios into the future, using different financial models. By leveraging fund holdings data from Thomson Reuters/Lipper along with IBM/ Algorithmics risk management technology, the firm performs optimization and forward-looking simulations on client portfolios. RiskGrid also leverages Amazon’s EC2 cloud service to host the Algorithmics platform to offer wealth managers a next generation integration of portfolio optimization, investment risk analysis, data integration, and wealth management services.
RiskGrid’s scenario-based risk and optimization solutions are well-suited for financial advisors, private bankers, high-net worth investors, and self-directed retail investors using digital platforms.
Scenario-based optimization allows wealth managers to construct investment portfolios which consider multiple future scenarios and checks whether the investment strategies align with the investors' goals with minimal risk
The firm aims to lower the cost of operating IBM/ Algorithmics by integrating the data solution, developing risk factor models and scenario sets on the server side and a user-friendly front-end application on the client side delivered via the web or inside Thompson Reuters’ Eikon platform. The integration with Thomson Reuters Eikon allows users to share portfolio data between Eikon Portfolio Management solution (PORT) and the RiskGrid App. This integration has enabled Thomson Reuters to fill gaps in their portfolio management solution by integrating RiskGrid’s forward-looking risk analysis and stress-testing with their historical performance analysis and attribution capabilities within Eikon. Additionally, RiskGrid's cost-effective, scalable server environment is powered by Amazon EC2 cloud service and provides wealth managers with a robo-for-advisor platform that can be integrated with their in-house solutions. Clients have the option of accessing their risk reports from RiskGrid web application or using an API to access the underlying data of these reports.
RiskGrid also offers portfolio monitoring tools to provide transparency and stress test reports of clients risk exposures and return distributions at future time points. These reports help determine the suitability of investment strategies relative to investors’ goals and risk tolerances. When the suitability of the portfolio falls outside acceptable levels, investors can rebalance by updating the scenario optimization settings. Focused on delivering cost-efficient web-based risk management solutions, RiskGrid takes it a notch higher with an integrated scenario-based optimization solution for the wealth management industry.