Dicing with derivatives

PUBLISHED : Tuesday, 24 October, 1995, 12:00am
UPDATED : Tuesday, 24 October, 1995, 12:00am

A RECENT survey commissioned by multinational accountancy firm Ernst & Young assessed 143 investment management firms around the world, managing assets of more than US$535 billion.

The survey showed that 31 per cent were using some kind of derivative product, many of which were not for hedging purposes, but to add a bit of zip to portfolios.

It showed fund managers were increasing their useage of derivatives while failing to adequately monitor the risk they were exposed to - the money management equivalent of playing Russian roulette with three full chambers.

Ernst & Young used as a benchmark recommendations from the 'Group of Thirty' - a global derivatives study group that draws up basic risk management techniques for derivatives users - concluding that it did not find any firm that had adopted all the group's recommendations.

Risk-management systems have to be in place to ensure things do not get out of hand - and it is here that fund managers appear to be falling short of the mark.