Performance Book of Record (PBOR): A new approach to measuring performance, exposure and risk

Rich Mailhos, Product Manager, Eagle Investment Systems


pbor_coverMost investment managers have a range of spreadsheets or desktop applications that may ‘tactically’ calculate performance and carry out risk analysis for specific asset classes. While there will always be a place for these discrete quantitative tools, increasingly firms are looking for an enhanced, comprehensive view of performance that accurately captures the investment activity across the entire enterprise. This trend, which is being driven by growing internal needs of global asset managers, more exhaustive regulatory requirements, new client demands and the ongoing drive for a competitive advantage, will only pick up more steam in 2015 and beyond.

To help clients address these demands, we released a new white paper that outlines how a data-centric approach can enable firms to achieve a ‘true’ total view of performance results and exposures, as well as other enriched information, across all business lines and asset classes to effectively create a Performance Book of Record or PBOR.

In November last year, WatersTechnology surveyed senior data management and financial technology decision-makers in international financial institutions to examine the breadth of capabilities when it comes to performance measurement. Among the findings, the report revealed that investment firms are struggling to fulfill the risk management and reporting demands of both their clients and the regulators.

Only one in five companies (21%) are very satisfied with their ability to access timely, accurate and relevant performance data. This is not a surprise given 72% of respondents need to use multiple systems to aggregate their investment and performance data and fulfill their management- and client-reporting obligations. As a result, information officers, risk officers and portfolio managers spend a significant amount of time cobbling together performance information — a largely manual task that is prone to error. Often, more time is dedicated to gathering, normalizing and enriching the data than actually analyzing it.

Some of the main challenges asset managers face when it comes to measuring performance and risk include:

  • Multiple sources. The calculation and delivery of performance returns based on different accounting rules, different frequency of valuations, and different levels of detail from disparate recordkeeping systems can create headaches for CIOs. A solution must have elegant patterns for enriching “incomplete” data for complex instruments such as derivatives and non-marketable assets. Moreover, solutions must continually measure data quality to track consistency issues or identify errors that necessitate recalculating performance returns or require an analytic data refresh.
  • Multiple views. The calculation of performance across multiple clients, fund types, asset classes, and operating regions with different and discrete measurement requirements represents another challenge. A solution must have the flexibility to calculate different types of return such as net of fees, gross of expenses, before/after tax, and notional valuation basis in a single platform.
  • Multiple methodologies. Harmonizing methodologies across different asset classes with unique requirements introduces another layer of complexity. For instance, consider private equity with lagged/non-lagged returns and real estate with actual versus projected cash flows. Alignment of varying historical return frequencies in support of flexible ‘to-date’ assumptions as defined by portfolio characteristics is critical.
  • Platform optimization. Supporting performance calculations, benchmark-, currency- and hedge-relative performance attribution analysis, and ex-post and ex-ante risk on a single platform also presents challenges, but can be solved with technical architecture that is scalable and flexible. A solution must be able to support the increased level of data when calculating at the security-level and have the flexibility to support the needs of the business. Some vendors require their performance data to be reprocessed through an accounting system, which increases data requirements and operational overhead due to reconciliation activities.

With Eagle’s data-centric approach, firms can benefit from a consistent data lineage that delivers a consolidated view of their investments across all asset classes and all return metrics, while maintaining source integrity of their data. Coupled with a multitude of tools capable of enriching, aggregating and normalizing information, Eagle is able to help firms meet these challenges head on to achieve a PBOR.

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