Why bother spending time on counterparty risk?
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by Bernard Aybran on Jan 20, 2012 at 07:01
Ucits are segregated pools of assets and, as such, would be harmed by the failure of the custodian. What should therefore be contemplated are difficulties in having orders properly handled on behalf of the fund if the team within the custodian bank is on the verge of being dismantled.
The bottom-line is counterparty risk is by nature very different from most other risk factors both in its likelihood and potential impact. Then, if a fund selector wonders whether or not it’s worthwhile spending hours on assessing it, the answer is clearly positive.
Bernard Aybran is the CIO and head of multimanagement at Invesco and is based in Paris.
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2 comments so far. Why not have your say?
Missold Investor
Jan 20, 2012 at 07:44
The security of structured savings products sold in the high street often depends on the quality of a counterparty, even when marketed as "capital protected", and this is a point that many savers don't get.. 6000 UK savers lost their money when Lehman collapsed, most of whom didn't even know that Lehman was involved, and most had never heard of the term 'counterparty'.
report thisWhite Stick follower
Jan 22, 2012 at 18:05
Counerparty was important says FSA/FSCS ,when the Lehmans went bust and Plans backed became worthless. Investors, mainly newly or well-retired folks were told- you should have checked out the counterparty risk before investing, Your loss is your own fault, but now it's clear that FSA didn't warn about that risk in its Help Sheet, and suddenly the party line has changed. Oh it wasn't seen as important back in 2008 when these Plans were marketed so it wasn't mentioned. Ducking and diving or what? When is a risk not a risk? Only after the event, as usual. FSA is very good at saying what went wrong, when things have been proven as wrong. Does FSA ever step in before people lose money, whether it is counterparty,risk, product material not fair clear or not misleading, missing trader, fraud, where does it stop. Caveat emptor is all very well, but the average senior citizen is not an expert in finacial matters and deserves protection. When did FSA ever prosecute anyone,?Maybe they have, but I can't recall it.
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