How Open-Ended Funds Are Redefining Risk Management
An increasingly complex and tightly regulated financial environment has forced asset managers to rewrite their risk management playbooks. Volatility, macro uncertainty, and fee pressure are reshaping portfolios, while regulators push for greater transparency. To stay ahead, asset managers and hedge funds are turning to advanced risk practices and modern infrastructure.
These themes took center stage in a webinar panel, A New Chapter in Risk Management for Open-Ended Funds, hosted by Numerix and our partner, Apex, featuring Numerix’s Ilja Faerman, and Apex’s Alan McKenna and Max Hilton. The discussion explored how the buy side is adapting to an evolving risk landscape—covering everything from derivatives use and regulatory frameworks to operational resilience and new, innovative technologies. Below, we break down key highlights of the insightful conversation.
The Rise of Derivatives and Structured Products
Panelists agreed that one of the clearest shifts has been the increasing use of derivatives and structured products by open-ended funds. Traditionally the domain of liability-driven investors and sell-side institutions, these tools are now spreading across a broader swath of asset managers.
Derivatives are increasingly being used not just for hedging, but also for shaping cash flow profiles and managing asset-liability mismatches. Even asset managers who do not trade derivatives directly are often exposed through securities with embedded optionality, such as mortgage-backed securities (MBS) or bonds linked to CMS spreads. This has raised the bar for risk analytics, requiring more advanced modeling to properly capture exposures under stress scenarios.
Another important development has been the rise of quantitative investment strategies and tailored beta products. Hedge funds often access these strategies through total return swaps, which demand a “look-through” risk management approach. As McKenna observed, this trend reflects a more level playing field between buy side and sell side participants, as sophisticated pricing and risk analysis tools become standard across both.
Regulatory Pressure Intensifies
The session conversation then turned to regulation, where panelists highlighted intensifying demands under frameworks such as UCITS, AIFMD, and EMIR. Hilton pointed to valuation oversight—especially for private credit and securitized assets—as a key focus. Regulators expect independent, well-documented processes to support mark-to-model valuations, with clear evidence of governance.
In Europe, strict VaR limits require firms to explain volatility spikes and disaggregate drivers of risk, while liquidity risk management has become an area of global convergence. As Hilton noted, the ability to assess market impact and time-to-liquidation is increasingly critical, particularly for funds holding less liquid private assets.
McKenna added that while regulation can feel burdensome, firms should also view it as an opportunity. Demonstrating compliance and strong risk oversight can help attract investors by showcasing transparency and discipline.
Evolving Risk Frameworks
The panel also examined how regulatory pressures are reshaping risk frameworks. Faerman emphasized that issues once considered “sell-side” concerns—like collateral management and funding costs—are now highly relevant for asset managers. In today’s environment of high rates and volatility, collateral choices can meaningfully affect valuations and trade economics.
Cross-currency swaps provide another example: managers investing in foreign bonds must weigh funding and collateral costs when comparing yields across markets. These considerations demand more sophisticated modeling and transparency around assumptions.
There may be a broader cultural shift at work as well: risk management is no longer siloed in middle-office teams, but is increasingly integrated into the front office. With tighter margins and greater scrutiny, every basis point matters, making pre-trade risk insights essential for investment decisions.
Operational Bottlenecks and the Shift to Modern Infrastructure
Operational complexity was another major theme discussed during the session. As portfolios diversify into structured products, private assets, and derivatives, traditional siloed systems and manual workflows are no longer sufficient.
Hilton explained that Apex often acts as a “data partner,” aggregating inputs from dozens of administrators and custodians while enabling dynamic, customizable reporting. Clients increasingly demand automation and flexible workflows—such as automated alerts on concentration breaches or liquidity thresholds—that can adapt to their governance models.
Faerman highlighted the transformative role of cloud computing and software-as-a-service. Unlimited scalability allows risk managers to run stress tests and VaR calculations more frequently, enabling more informed decisions. Combined with quantitative modeling innovations like adjoint algorithmic differentiation (AAD) for faster Greeks, cloud-native risk engines offer both speed and accuracy.
McKenna pointed to co-sourcing models and seamless integration as keys to overcoming operational bottlenecks. By eliminating the patchwork of disconnected systems that once plagued the industry, firms can streamline trade capture, valuation, collateral management, and reporting into a single environment.
Technology on the Horizon
While the panel focused primarily on today’s practical challenges, they also offered a brief glimpse into the future. Artificial intelligence and digital assets (including DeFi and blockchain applications) were identified as areas poised to transform operations, from reconciliation to reporting. For now, however, panelists stressed that innovation in core mathematics and analytics is just as important as advances in hardware. The ability to produce sensitivities efficiently, run calculations on GPUs, and scale instantly in the cloud will define the next generation of risk engines.
Global Trends and Regional Nuances
The panel concluded by considering regional variations. While global markets are highly interconnected, certain products and practices show local flavors. For example, mortgage markets differ significantly between Europe and the U.S., requiring distinct modeling approaches. In Switzerland, actively managed certificates are popular, while other regions may favor derivatives-based structures.
Yet despite these nuances, the overarching pressures—volatility, regulation, and the demand for transparency—are global in nature.
Get Deeper Insight
Risk management for open-ended funds is entering a new chapter. Facing volatility, regulation, and operational complexity, asset managers now have powerful tools to adapt and turn risk into a competitive advantage.
For a deeper dive into these insights, watch the full on-demand webinar here: A New Chapter in Risk Management for Open-Ended Funds.
