# Risk modelling beyond VaR: what asset managers need in 2026 > Financial Services · By Adam Hadley · 2026-03-19 Value at Risk was good enough for a different market. The combination of crypto exposure, climate stress and regulatory pressure means asset managers need richer risk models. ## VaR was an answer to a question nobody is asking any more On 5 August 2024, the Cboe VIX opened with an intraday high of 65, up from a close of 23 the previous session, as the unwind of the yen carry trade tore through leveraged positions from Tokyo to New York. The TOPIX 500 fell 12.3 per cent in a single session, its worst day since Black Monday 1987. JP Morgan later estimated that between 65 and 75 per cent of global carry trade positions were liquidated by mid-August. Most asset managers arrived at the desk that Monday with a one-day 99 per cent VaR number that bore no resemblance to what actually happened to the book. That gap, between the number on the dashboard and the number on the P&L, is the story of modern risk management. Value at Risk was designed for a particular kind of problem: how much could we lose on this portfolio over a normal day, given the historical distribution of returns. For a 1990s long-only equity book, that was a useful number. The question and the answer matched. The market asset managers operate in today does not look like that market. Crypto exposure, climate-related transition stress, leveraged basis trades, supply chain shocks, regulatory recalibration and the persistent threat of algo-driven flash events have redefined what "risk" means in practice. VaR is still in every regulatory submission and most internal dashboards. It is no longer the question anyone is actually asking. ```diagram { "svg": "" } ``` ## The evidence has been piling up The 2022 LDI crisis should have killed industry confidence in standard market risk models outright. When gilt yields moved 160 basis points in under four sessions after the September mini-Budget, the Bank of England later estimated that without intervention, around 90 per cent of UK defined benefit schemes with leveraged LDI overlays would have run out of collateral. The Pensions Regulator's own 2019 survey had found that only 55 per cent of schemes stress tested for interest rate shocks, and those that did typically modelled a move of around 100 basis points over weeks, not days. The stress test envelope was an order of magnitude smaller than what the market delivered. Credit Suisse's $5.5bn Archegos loss told a different version of the same story. The independent review found that the $20bn total return swap exposure to a single family office was essentially invisible to standard VaR, RWA and leverage ratio measures. A scenario analysis run in February 2021 had flagged losses of $1.4bn, comfortably breaching the bank's $800m scenario limit. Nobody acted. The bank had the right tool. It did not have the right governance wrapper around it, and the standard risk number told a reassuring story right up to the default. ```diagram { "svg": "" } ``` ## The questions that matter now The questions that actually inform portfolio decisions look nothing like "what is our one-day 99 per cent VaR": - What happens to this portfolio if the energy transition accelerates by 18 months and stranded asset write-downs arrive before 2028? - What is our aggregated exposure to a single counterparty across prime brokerage, OTC derivatives and synthetic positions, the way Credit Suisse failed to see Archegos? - If three of our top ten holdings face a coordinated short attack on a Sunday evening in Asia, what is our liquidity position 24 hours later? - Which positions would breach FRTB's new Advanced Standardised Approach capital charges when the PRA's market risk framework takes effect on 1 January 2027? - What is our combined exposure to Bitcoin, gold and long-duration Treasuries if correlations flip positive, as they did in March 2023? None of these are well served by VaR. They need scenario engines, custom stress tests, real-time exposure aggregation and integration with forward-looking regulatory modelling. They need infrastructure most risk systems were not designed to provide. ## The regulatory wave has already landed Anyone still treating risk modernisation as a nice-to-have has not read the statute book. The PRA published Supervisory Statement 5/25 on 3 December 2025, which replaces SS3/19 in its entirety and sets new climate risk management expectations for UK banks, insurers and PRA-designated investment firms, with an initial internal review due by 3 June 2026. The PRA's Basel 3.1 final rules published in January 2026 bring the FRTB trading book boundary, the Advanced Standardised Approach and the Simplified Standardised Approach into force on 1 January 2027, with the Internal Model Approach following on 1 January 2028. In Brussels, the European Commission's SFDR 2.0 proposal published on 20 November 2025 pivots the regime from disclosure to product categorisation, with 70 per cent minimum sustainable investment thresholds for labelled funds. This is a lot of change arriving at once. It is also a lot of scenarios that a VaR engine calibrated on three years of rolling returns cannot express. ```diagram { "svg": "" } ``` ## What good looks like The asset managers we work with who are doing this well share a common pattern. They keep their existing vendor risk system, usually BlackRock Aladdin, which ran approximately $25tn of notional assets on its platform by end-2025, or MSCI BarraOne, for regulatory submissions and standard reporting. Rebuilding those pipes is expensive and, frankly, pointless. On top of the vendor layer, they build a custom layer that does the work that actually informs investment decisions. That custom layer is usually four things. A scenario engine that expresses "what if X happens" in human-readable terms and returns a portfolio impact in minutes, not overnight. Real-time exposure aggregation across counterparty, sector, geography and factor, covering synthetic and OTC positions the vendor system cannot see. Custom stress tests calibrated to how the CIO actually thinks about risk, not the generic regulatory menu. And forward regulatory modelling that answers "what would we look like under the 2027 FRTB standardised approach" before the rules take effect. ```diagram { "svg": "" } ``` None of this is technically difficult. It is well within reach of a small engineering team in months, not years. The reason most asset managers do not have it is that the buy-versus-build conversation has historically defaulted to buy, and the vendor ecosystem does not sell this kind of bespoke layer well. That default is now breaking down, because the cost of being caught short, as Credit Suisse's shareholders discovered, is no longer theoretical. ## The shift that is coming We expect the next three years to see a quiet but consistent shift among UK and European asset managers towards owning the parts of their risk stack that inform decisions. The boring parts will stay with vendors. The parts that matter will increasingly be built in-house, often in partnership with specialist engineering teams. The firms that move first will have an analytical edge when the next LDI-scale event arrives. The firms that do not will be reading about it in the FT. ## Sources - Cboe, VIX Index Attribution of Notable Tail Events, August 2024 - BIS Bulletin No 90, The market turbulence and carry trade unwind of August 2024 - Bank of England, Financial Stability Report December 2022, LDI intervention - IMF Working Paper 2023/210, Putting Out the NBFIRE: Lessons from the UK's LDI Crisis - The Pensions Regulator, Market oversight: LDI, 2022-2023 - Credit Suisse Group Special Committee, Report on Archegos Capital Management, July 2021 - Risk.net, The post-Archegos risk model rebuild begins slowly - Bank of England, PS25/25 and SS5/25, Enhancing banks' and insurers' approaches to managing climate-related risks, 3 December 2025 - Bank of England, PS1/26 Implementation of Basel 3.1 final rules, January 2026 - European Commission, SFDR 2.0 legislative proposal, 20 November 2025 - BlackRock investor disclosures and Institutional Investor reporting on Aladdin platform assets, 2025 - SSRN paper 5840846, Institutional Adoption of Cryptocurrency Exposure, 13F filings 2024-2025 --- Canonical page: https://quantspark.ai/insights/risk-modelling-beyond-var More about QuantSpark: https://quantspark.ai/llms.txt