Monthly Archives: June 2019

A Close-up on Canada: Data, Investment Performance, Technology and Operational Strategy in Focus

Manuel Tereso, CFA, Consulting Lead, & Mark Goodey, Dip IoD, Director


The investment management landscape in Canada continues to change rapidly. Mounting regulation, technological advancement, changing client demands, business transformation initiatives, and consolidation are presenting asset managers with both new opportunities and new risks. This prevailing shift in the industry was felt at two recent events in the region – TSAM Toronto and a client event that Eagle hosted jointly with CIBC Mellon. The events shared common, prominent themes in the industry that arose amongst the operations teams of Canadian asset managers and asset owners.

Mastering Strategic Data Quality
Firms are focusing on creating robust governance frameworks and enhancing the strategic management of their data, evidenced by the growth of the Chief Data Officer role. At TSAM Toronto, a show of hands was asked for those who did not have a data office within their organisation, highlighting that a tipping point has clearly been reached. Previously, the assumption of embarking on a new technology project was that data issues would resolve themselves or would be someone else’s problem to address further down the line. Yet today, many enterprise level projects and initiatives now start with better alignment to data as a primary governing thought. Firms are investing significant amounts of time, money, and energy in ensuring the quality of their data. Judging from the topics and interest from the TSAM Toronto delegates, it is evident data management will continue to be a growing priority.

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Replacing LIBOR: Transitioning to Risk-Free Rates

Brexit has effectively sealed the fate of LIBOR. The transition to global risk-free rates promises to be more taxing than most organizations are anticipating

Brian Dunton, Head of Instrument Engineering, Eagle Investment Systems


LIBOR, the most referenced interest rate benchmark in the world, is due to be phased out starting in 2021. The 2012 LIBOR scandal – in which benchmark rates were manipulated by rogue bankers to benefit their derivatives-trading operations – has resulted in a move toward risk-free rates (RFR). The momentum behind this has only become more acute as financial institutions get their arms around the impact of Brexit.

LIBOR, for the uninitiated, refers to the London inter-bank offered rate and is calculated using appraisals from leading financial institutions in which the banks estimate how much they would be charged to borrow from peer institutions. Risk-free rates, alternatively, are generally calculated as the weighted average rate from actual overnight lending between banks. Given the potential for manipulation, inter-bank offered rates are expected to gradually be replaced by global RFRs. For historical context, the LIBOR benchmark has long been used to calculate financing on swaps, bonds, mortgage-backed securities, bank loans and a host of other financial instruments. The expectation is that deals will start to gravitate toward published risk-free rates. While it sounds seamless, replacing the benchmark with a different index to calculate financing accruals is far more complex than it may appear at first blush.

Consider, for instance, that a vanilla interest rate swap would historically represent a fixed rate versus a floating interest rate hedge based upon the current LIBOR rate. Other economic indicators, such as the yield curve, are also generally factored in at the time that the deal was struck. While one leg would remain fixed throughout the life of the deal, the other would reset at each payment period. Different tenors of LIBOR were published and used to calculate swap financing fees for each period.
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