RiskMetrics shows the plight of Hedge Funds


New York – RiskMetrics recently lowered its expected revenue for the year from $315 million down to between $300 and $305 million.  RiskMetrics’ new revenue projections were lower than analyst expectations, which generally fell in the $312.2 million range.  In the second quarter RiskMetrics earned a profit of $7.2 million, or 11 cents a share which was higher than a year ago but lower than analysts were expecting (about 12 cents a share).

Fox-Pitt analyst Edward Ditmire attempted to explain the drop in projected revenue saying, “Exit momentum in terms of recurring revenue base was weak for the company, and the full-year guidance, which management had previously acknowledged was becoming more hopeful, was officially lowered.”

RiskMetrics itself explained the drop in revenue by citing a drop in business from hedge funds.   Chief Executive Ethan Berman said that part of RiskMetrics lack of revenue can be explained by a large number of hedge funds closing shop without new funds being formed to take their place.  Berman also stated that he sees the third quarter renewal rates for RiskMetrics to be in the lower 80 percent range but to pick back up in the fourth quarter.

RiskMetrics second quarter earnings show that hedge funds are still struggling to stay afloat in the current environment and as a result the research firms which serve these funds are taking a hit as well.  Unfortunately this is not all that surprising, as Integrity has recently estimated that overall, the combined independent research budget of the financial industry will decrease 15% this year from its 2008 total of $2.03 billion.  Hopefully RiskMetrics is correct in assuming that the 4th quarter will start a turnaround from the research spending trends seen so far this year.

RiskMetrics is a provider of risk management, corporate governance, financial research & analysis, and related services. Having been started by JP Morgan in the 1990s, the firm was spun off as a separate company in 1998. Subsequently, the firm has done a roll up of three research providers: 1) CFRA, a forensic accounting firm with expertise in legal and regulatory issues, 2) ISS, a corporate governance research shop with proxy services for fiduciaries and 3) Innovest, a provider of ESG research. The firm’s core risk management products revolve around market risk and credit risk and encompass a wide range of markets, including equities, bonds, commodities, foreign exchange, futures, options, derivatives, structured products, interest-rate products, and credit products. These services include software and analytics, data, and managed services to help clients optimize the use of their capital, perform risk and return analysis, verify and evaluate securities, and meet regulatory requirements. The firm’s financial research and analysis products help clients evaluate financial/accounting risk, legal & regulatory risk, environmental & social risk, and corporate governance risk. The firm’s governance products include a range of services including proxy voting advisory, governance research and related products.


About Author

Leave A Reply