PBOR: Aligning the Middle Office to Meet Escalating Front-Office Demands

Rich Mailhos, Product Manager, Performance Measurement

Rich Mailhos recaps a recent webcast featuring Eagle clients TIAA-CREF and Fort Washington Investment Advisors on the far-reaching value of PBOR

Those with graying hair may still remember the old days of performance reporting and the nascent technology that supported these efforts, marked by dedicated offices housing DEC VAX machines and rows of computers running Fortran code. A holdover of this era is the continued reliance on monthly custodial data and spreadsheets, even as data volumes grow and the various forms of data multiply. Those in the middle office tasked with performance measurement are all too familiar with the problems posed in trying to manage siloed data through Excel and in a way that meets the escalating demands of the front office. As these challenges reach critical mass, asset managers are increasingly turning to a Performance Book of Record (PBOR), a term Eagle introduced to the market in early 2015.

Such was the subject of the webcast I recently participated in that was hosted by WatersTechnology. Also participating in the discussion were Eagle clients, TIAA-CREF’s Senior Director of Performance and Reporting, Nancy Carola, and Fort Washington Investment Advisors’ Manager of Performance and Reconciliation, Tom Anderson. WatersTechnology Editor in Chief, Victor Anderson, served as moderator.

The discussion largely revolved around how to approach, utilize and realize the most value out of a PBOR. It also addressed many of the common questions asset managers ask when they begin exploring a PBOR solution, such as its relation to accounting and investment books of record and the infrastructure required before a PBOR is even possible.

Nancy Carola perhaps best summed it up when she characterized a PBOR as the “natural succession” in the ongoing evolution of tools designed to track and measure performance and risk.

To provide a backdrop, it helps to understand exactly what a PBOR is and the capabilities it delivers. Effectively a superset of an investment book of record, a PBOR delivers a total “true” view of performance results, attribution and exposure analysis across business lines and asset classes. For example, PBOR’s can help produce on-demand portfolio calculations, result validations, customized benchmarks, portfolio aggregation, consistent FX and fair valuations, and composite hierarchies. Importantly, particularly for the front office, a PBOR reinforces data quality while introducing new efficiencies that help organizations better deploy resources to analysis and revenue-producing areas of the business.

“We have complex processes and products—and the investment team is looking to do new things,” Fort Washington’s Tom Anderson described. “[Prior to achieving a PBOR], they would create analytics we didn’t have, and you’d see data silos created. The performance book of record is reining all of that into one system and one set of processes.”

From a front-office perspective, a PBOR helps provide both ex-post views for performance and ex-ante views for risk. More specifically, executives and portfolio managers can unpack performance results to understand whether they met objectives intentionally or through circumstance as well as to understand if the fund or portfolio behaved as expected when under duress. On the other hand, forward-looking views help forecast whether investment strategies can meet stated objectives and model out how the portfolio may react in a scenario similar to the global financial crisis.

But the real value of a PBOR extends across the enterprise. “Everyone in the organization is saying, ‘I want more information sooner,’” Tom Anderson explains. He adds that in meeting these business needs, the middle office can be elevated from a reactive retriever of information to a proactive conduit that helps drive the business with new data and further-reaching analysis.

Nancy Carola further described that along with network architecture improvements and other technology upgrades, an IBOR, on which performance analysis is performed, has allowed TIAA-CREF to keep up with the transaction flow as well as the growing volume and diversity of data. “We calculate daily returns on our mark-to-market assets, which are comprised of approximately 2,000 portfolios with composites underneath—each with anywhere from a few hundred securities to as many as 8,000,” she illustrates, noting that the process of calculating single-day returns typically takes about 10 minutes.

“The end result is that through my investment book I can access returns going back to the early ‘90s and I have security-level data for the last seven years; [a PBOR] is an easy sell to downstream teams, because there’s one version of the truth,” she added.

A replay of the webcast, “PBOR: Addressing the Evolving Performance and Risk Needs of the Front Office,” is available here, while a white paper that further details the characteristics of a performance book of record can be found here.

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