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Driving Performance with Portfolio Analytics and Risk Technology
By Rob Garfield | December 5, 2017

Thin investment returns, shifting regulations, and tight operating margins are forcing buy-side firms to modernize their investment technology to stay competitive. These firms’ major technology obstacles to growth include error prone spreadsheets, inflexible in-house software and disparate legacy systems.

We recently held a webinar to explore how top-performing buy-side firms are overcoming these challenges. Speakers, Kevin McPartland of Greenwich Associates and James Church, VP of Products and R&D at FINCAD, revealed that firms are using integrated analytics platforms to:

  • Enhance performance and respond faster to market opportunities with more flexible technology
  • Optimize and manage multi-asset portfolios with configurable portfolio analytics and risk reports
  • Align the front and middle office and minimize operational risk with a centralized valuation and risk platform

Kevin kicked off the webinar discussing how, despite the rise in the capital markets, business continues to be tough. While the equity markets are improving, that is really where the positive news ends for institutional investors. The reality is that low rates, volume and volatility are all a drag on the markets.

Kevin also explained that the reduced role of dealers as market makers has adversely impacted firms’ ability to execute trading strategies. In the asset management community, fee pressures are hitting hard. This is particularly true for those with active strategies.

As asset managers work to overcome these challenges they are looking to upgrade their technology for help. However, the reality is that the cost of building in-house is high— and maintaining those systems in-house is even higher. Thus firms are increasingly turning to third-party providers offering systems that can be easily customized to an individual firm’s investment style and other key factors. A partner can help firms not only customize the system, but also keep up with changes in business and market practices, and compliance. 

Kevin presented research from Greenwich Associates showing the increasing trend of using third-party software on the trading desk to replace homegrown systems. He explained that there is large emphasis on systems offering strong data and analytics for better pricing and risk management. This is especially critical in fixed income, which is more opaque compared to most other markets. Also, as shown in the infographic, a big demand of firms is that third-party systems be easier to integrate with existing data and systems. Fortunately there are some best-of-breed providers that have adapted their technology to meet this demand. 

In his portion of the presentation, James discussed the drivers that are motivating many buy-side firms to upgrade their portfolio management systems. He discussed recent Aite research that showed the three top drivers for implementing new systems include:

  • improving operational efficiency,
  • automating/replacing manual processes, and
  • improving data integrity/quality 

Statistics on these investment drivers are indicated in the graph below. 

There is more complexity than ever in firms’ technology setups as new requirements emerge for their systems. Some of the challenges that firms are dealing with are, implementing new instruments and asset classes, introducing bespoke portfolio analysis for optimization or back-testing, calculating xVA, and meeting changing regulatory requirements.

Coping with all the complexity means that many firms have a patchwork of systems for portfolio and risk management. Use of this patchwork leads to inconsistent data, analytics and it makes it challenging to effectively collaborate across teams in an organization. This approach also increases the burden of manual processes, which of course has a negative toll on costs and efficiency.

By abandoning the patchwork approach to systems, and instead adopting one integrated analytics platform for portfolio analytics and risk management, firms can improve performance, increase collaboration, improve data quality and integrity, and reduce operational risk. The outcome is that firms are empowered to take their business in any direction they choose.

To learn more, view our on-demand recording of this webinar: Turbocharge Your Valuation and Risk Technology