Measurisk.com - a joint venture between Micro Modeling Associates,Morgan Stanley Dean Witter & Co. (NYSE: MWD), Bank of Bermuda and XL
Capital (NYSE: XL) - will provide institutional investors with comprehensive risk analysis using industry-standard methodology including Value-at-Risk ("VaR"), all delivered over the World Wide
Web. GTE Investment Management Corp., one of the largest corporate pension funds in the U.S., has agreed to test Measurisk.com's service.
As an outside vendor, Measurisk.com will offer economies of scale to its clients, providing an objective, cost-effective alternative for
pension plans, mutual funds, hedge funds and insurers who may not wish to make the considerable investment in systems, staff or market data necessary to purchase and run packaged risk analysis software.
"By assembling best-of-breed risk measurement tools for the buy side in an easy-to-use, Web-based medium, Measurisk.com addresses all six categories of risk defined by the Basle Committee on Banking Supervision and the [buy-side] Risk Standards Working Group," said Kelsey Biggers, Measurisk.com President and CEO. "Most risk management systems focus only on a single type of risk for a single asset class. We cover the whole waterfront."
"Pension funds are exposed to risk as they seek better performance.They need to understand which risks they are taking, how big they are, which investments or investment managers are contributing to total risk, and how risk is changing over time," said Measurisk.com Chairman
Robert Glauber, an Undersecretary of the Treasury in the Bush Administration who also chaired the "Brady Commission" that investigated the stock market crash of 1987.
A Comprehensive View
By partnering with the best-of-breed providers of risk analysis tools and services, Measurisk.com can offer pension plans, investment management firms, insurance companies, hedge funds, corporate
treasurers and mutual funds a comprehensive way to measure and track the six major categories of risk: market, credit, liquidity, operational, settlement and legal. Using an on-line questionnaire created by KPMG LLP, investors can assess their vulnerability to operational SNAFUs. With VaR analytics powered by software from
industry leader Algorithmics, Inc., Measurisk.com quantifies market risk for all the assets in the investor's portfolio, starting at the level of the entire fund and drilling down to the account level. Measurisk.com also provides risk statistics for credit and liquidity risk, and allows the investor to perform "what-if" stress-testing on the portfolio.
VaR has been a widely accepted method of measuring risk at banks and securities dealers since the early 1990s. VaR uses the probability
distribution of returns for an asset over a period of time to estimate the dollar magnitude of the maximum likely loss for a given level of
confidence. By measuring the maximum expected dollar loss for, say, 19 months out of 20 for each asset or asset class in a portfolio,
investors can see a single risk statistic for an entire fund, rather than relying on such asset-specific measures of risk as beta (for
equities) or duration (for fixed-income instruments).
"It's a very easy concept to understand, but it's very hard to calculate correctly," warns Glauber. To create the return distributions for each security in a portfolio, an investor or
corporate treasurer would need information on each security, historical price data and the computer time to produce thousands of
scenarios for future price movements for every security. Measurisk.com assembles the market and security data, handles the portfolio feeds
from the investor's custodian, licenses RiskWatchô from Algorithmics to do the simulations and owns and maintains the computers to run it on. By spreading these costs over many customers, Measurisk.com can provide institutional investors and corporations cost-effective risk analysis comparable to that available to major banks and brokers.
Unprecedented Collaboration
Measurisk.com is independent of any securities dealer or financial institution, so investors can be confident of the service's objectivity and confidentiality. Nonetheless, Measurisk.com is the product of an unprecedented collaboration between some of the financial services industry's largest and most innovative players:
·GTE Investment Management Corp.: As one of the largest pension plans in the country, GTE is helping define Measurisk.com, so that the
offering is tailored to the needs of the institutional investment community."Measurisk.com helps us more precisely measure and manage a much broader array of market and operational risks," said T. Britton Harris IV, President of GTE Investment Management Corp.
· Morgan Stanley Dean Witter: In addition to making a capital investment, the Morgan Stanley risk group will act as a source of information regarding analytics, research and data for all areas of risk measurement. "More and more of our customers are asking us where they can turn for help in measuring their risks" said R. Sheldon
Johnson, managing director and head of worldwide equity derivatives at Morgan Stanley. "Measurisk allows us to provide our customers with a
total risk management solution."
· Bank of Bermuda: Bank of Bermuda, one of the largest administrators of offshore investment funds, is making a capital investment in
Measurisk.com and will provide a key platform for establishing the necessary links to its clients' portfolio data. "We believe offshore fund investors and managers will want to monitor their risks better,"said Bank of Bermuda Senior Vice President Peter McClean. Additionally, the bank has agreed to use Measurisk.com to analyze the
risks in its own treasury portfolio.
· XL Capital: XL Capital, a leading insurer and reinsurer based in Bermuda, is a capital investor in Measurisk.com and beta user. "The
insurance industry has developed some of the most sophisticated liability models but the same level of comprehensive risk analysis is not readily available for the asset portfolios," said Chris Greetham, EVP and chief investment officer at XL Capital Ltd. XL Capital will help Measurisk.com provide the necessary functionality required in the insurance industry.
· Micro Modeling Associates: MMA, a Wall Street-based, high-growth business technology consulting firm and capital investor in Measurisk.com, will design and build the risk service bureau. "By leveraging our expertise in custom application development and e-commerce strategy, design and
implementation with our real-world knowledge of the financial services sector, MMA is uniquely positioned to revolutionize risk measurement
for the buy-side," said Roy Wetterstrom, MMA President and founder. According to Wetterstrom, many of MMA's professionals were involved in
the development of risk systems at major Wall Street firms, and in fact, today roughly 10% of its developers have buy-side industry
experience.
· Algorithmics, Inc.: Algorithmics leads the industry in the development and implementation of innovative, enterprise-wide financial risk management software. RiskWatchô, Algorithmics' flagship product, will provide the analytic functions and valuation models that make up the core of the credit and market risk calculations for Measurisk.com. "Measurisk.com establishes Algorthmics' products and services as part of the rapidly growing Internet business community" notes Dr. Ron S. Dembo, president and CEO of Algorthmics. "The integration of Algorithmics' software equips Measurisk.com with a robust, scalable and forward-looking risk measurement system used across the business units of global financial institutions on a daily basis."
· KPMG LLP: A "Big Five" professional services firm, KPMG has developed a core competence in assessing financial institution operational risk. "Fund managers and institutional investors in the
future will have a new standard that can help them assess the elusive topic of operational risk," notes Robert Krizner, partner in charge of
the KPMG project team. The management team at Measurisk.com has years of experience in risk
management and systems development. Robert Glauber, the chairman of Measurisk.com, is co-founder of Derivatives Associates, a risk
management consulting firm that he cofounded with Jeffrey D. Miller, a principal at broker/dealer Miller Tabak Hirsch + Co. Derivatives Associates advises clients on risk measurement and risk management, offering in-depth financial risk advisory expertise, based on VaR analysis. MMA Executive Vice President Kelsey Biggers will serve as President and CEO of Measurisk.com and Andrew Lapkin, formerly Vice President in charge of development of Bankers Trust's RAROC 2020, is
Measurisk.com's chief operating officer. Andy Maretz, formerly with MMA's Enterprise group in Chicago, has joined Measurisk.com as Chief
Technology Officer and Don Goldman,
Measurisk.com's Chief Financial Engineer, ran his own derivatives analytics consulting firm,
DGAnalytics, and spent 10 years as managing director of Bankers Trust's global interest rate analytics group.
For more information on Measurisk.com, please view their website at www.Measurisk.com.