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Why Flexibility of Portfolio and Risk Systems Matters
By James Church | October 30, 2018

If there is one thing that is a constant in the financial industry, it is change. Investment firms need to continually review their investment strategies and explore new asset classes and markets in their search for yield. There have also been significant market shifts including the move to OIS discounting, and an extended period of negative rates. The pace and magnitude of change shows no signs of slowing down, with the plan to phase out LIBOR being a particularly far-reaching example. 

Without flexible portfolio and risk technology in place, firms will always struggle to adapt to change. Initiatives to put new, yield-enhancing trading strategies into play with emerging markets and/or structured products are often difficult, expensive and time-intensive to accomplish. But they don’t have to be. 

Below are examples of three of our clients that have overcome common investment and risk challenges using the inherent flexibility of FINCAD solutions. 

1. Aberdeen Asset Management PLC

Aberdeen is a global institutional asset manager that trades a wide variety of OTC instruments in multiple currencies, including interest rate swaps, credit default swaps, spreadlocks and swaptions. The firm was using proprietary systems to value its derivatives, but needed a new central system that would allow it to value its entire portfolio of instruments and provide the dealing desk with real-time valuations for all OTC positions.
A key requirement for the new solution was flexibility such that models could easily be modified to adapt to changing market standards. Specifically, Aberdeen needed the ability to accommodate possible future variations on existing instruments in response to an evolving market and the rate at which new instruments are being developed.

Aberdeen ultimately selected FINCAD F3 for its flexible architecture and the ability to generically represent even the most exotic financial structures. "What attracted us to F3 was the ability to model derivatives through a generic approach," said a portfolio manager at the firm. "This ensures that almost any swap type can be valued without the need to rely on providers to update the software for each new instrument."

2. Frame Financial Systems

Frame is a FinTech business providing pricing and risk analytics solutions. One of Frame’s clients, Kensington Capital Advisors, needed to add advanced derivative modeling capabilities that could assist clients in the structuring, negotiation and execution of hedging activities. 

Kensington selected FINCAD to power the Frame solution because of the sophisticated multi-asset valuation processing capabilities of F3 Platform, FINCAD’s expert Client Services support team, and the ease with which F3 could be customized. 

“F3 Platform’s flexible framework allowed us to customize the design of our offering. We have one cloud environment for the user interface and another cloud environment for the platform and analytics database. These two environments are able to connect and communicate seamlessly,” said the President of Frame Financial Systems.  

3. The Phoenix Group

Phoenix is the largest UK consolidator of closed life assurance funds. As part of its ALM strategy, the firm decided to bring quantitative financial analytics in-house. 

As a result, Phoenix needed to augment their existing actuarial risk monitoring process through introducing analytics that could bridge actuarial metrics (measuring Phoenix’s regulatory balance sheet) and asset management metrics. This was a big challenge since actuarial fixed income modeling is quite different than fixed income modeling performed by asset managers. In order to create bespoke fixed income asset models that could be applied across various market scenarios, Phoenix would need a highly flexible analytics solution. 

FINCAD’s award-winning F3 technology was selected for its flexibility, ease-of-use and the fact that it enabled Phoenix to create bespoke models for multiple asset classes and perform fast risk and return calculations across numerous scenarios. 

“This was the ideal pricing and risk platform solution for us. Using F3, we have been able to validate and augment our existing risk monitoring processes. Frequent scenario analysis helps us make more accurate, timely and thus, more effective, investment decisions. As a consequence, we have been able to reduce market risks and improve the firm’s balance sheet. Once set up, the F3 models work seamlessly to reflect the change in risks and returns across various economic and regulatory reporting metrics and on-the-fly scenarios,” said the Deputy Head of Investment Risk & ALM Strategy, Phoenix. 

To be resilient in the face of change, investment firms need software that is flexible to adapt to their specific needs, workflows and requirements. Using powerful and nimble portfolio and risk solutions, like FINCAD F3, this goal becomes a reality. F3 provides firms incredible flexibility for performing unlimited customizations using versatile tools such as Python. In fact, traders, quants, portfolio managers and risk managers alike can use F3’s robust Python toolkit to rapidly generate custom analytics, applications and reports that help drive better investment and risk decisions. Read our recent press release to learn more: FINCAD Launches Pioneering Python Toolkit for Valuation and Risk Analytics

About the author
James Church
James Church
VP, Product and R&D | FINCAD

James Church is Vice President of Product Management and R&D at FINCAD, and is responsible for the strategic direction of all FINCAD products. He has over 15 years of experience in the software industry. Before joining FINCAD James was Vice President of OLAP Product Management at Business Objects, and prior to that was Director of OLAP Product Management at Crystal Decisions. He studied Computer Science at North Staffordshire University in the U.K.