Data Enrichment: The Key to Understanding True Economic Exposure

The use cases for data enrichment continue to multiply as asset managers and their clients look to get a truer view and greater understanding of their positions. Patti Coan explores the data enrichment tools at their disposal and how they are best leveraged.

Patti Coan, Product Manager – Portfolio Data


It is probably fair to say that asset managers are looking to do more with their accounting data than ever before. The interest in the Investment Book of Record (IBOR) in recent years is testament to that as firms recognize the advantages that come with more immediate and comprehensive access to investment data. As such, demands around data enrichment are growing as global institutions seek to leverage their data in new ways, all in the name of gaining a clearer picture of their positions and exposures.

Many of the conversations we have with our clients and prospects revolve around how they can deliver greater insight to the front office and conduct deeper, more forward-looking portfolio and performance analysis without compromising core accounting data. This is particularly the case for portfolios with derivative securities such as futures, options and swaps. Demand for enriched data is being driven by both internal and client needs as well as the mounting squeeze from regulators, who are scrutinizing data more closely than ever before.

To be sure, data enrichment in and of itself does not necessarily represent a new advance. For years, asset managers and institutions have been repurposing their accounting data for use across their organizations. Typically, however, it has been done on a manual and often ad hoc basis using spreadsheets.

At present, portfolio structures are becoming increasingly complex, the volume of data continues to grow exponentially and the industry is being called upon to provide greater transparency and clarity. Coupled with an increasing demand for an audit trail showing exactly how the data has been enriched, the financial community is quickly realizing that spreadsheets alone cannot handle the growing demand for enriched data. Moreover, closely analyzing the impact of derivatives, employing different pricing sources and rolling data forward is becoming too time-consuming to rely on manual data enrichment processes. All of this is driving the need for institutions to systematize and automate the enrichment of data.

Below are some of the scenarios where Eagle’s metadata-driven enrichment engine is being used to provide more meaningful analysis and build a true picture of a firm’s economic exposure by enhancing, transforming and enriching their data.

Determining real exposure
This is a request raised by portfolio managers, internal stakeholders and, increasingly, clients as they look to more comprehensively understand their true exposure to futures contracts. In the accounting environment, you cannot calculate a rate of return on a futures contract because it carries a zero value and the gain and loss is recognized daily. This obviously satisfies a crucial demand for the data; however, there is also a need to enrich that data to get a real view of their exposure by attributing an exposure value and security level returns to their futures contracts.

Revaluing a portfolio at a different frequency to the accounting system
Some assets, such as real estate, might only be valued and restated quarterly but there may also be a requirement to deliver an interim value every month. Enrichment can look at that valuation and revalue it by either looking at the last period end and rolling it forward or using a new estimated price based on a mark-to-market valuation.

Fair value pricing
Another common requirement is the need to deliver fair value pricing in order to deliver a revalued portfolio valuation based on a different FX rate or pricing source. On a related note, GIPS® advises that all entities within a composite should share the same pricing source. While this is not a steadfast rule, firms looking to adopt best practices will seek to revalue their portfolios to incorporate the single pricing or FX source.

Weighing up the options
With options, in addition to seeing the option price, it is useful to look through to the underlying stock to garner a truer representation of its value. By performing a delta-adjusted option valuation, it is possible to measure the movement of the stock relative to the option price.

Benchmarking
Managers often want to see what the valuation for a whole portfolio would be based on the benchmark prices instead of portfolio prices. This provides added context around performance and attribution.

Measuring private equity performance
Private equity funds typically have a 45-day lag in price. For example, a valuation that takes place on December 31 would be used for accounting purposes in mid-February. However, for performance purposes, firms typically prefer to use a mid-February valuation rather than one from the end of December. There is therefore a need to take the December 31 figure and roll that forward to enable a mark-to-market valuation.

The use cases for data enrichment continue to multiply as asset managers and their clients look to get a truer view and greater understanding of their positions. Eagle’s enrichment tool has the capability and flexibility to help deliver that understanding and ultimately help our clients make better investment decisions.

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