From boutique asset managers to institutional investors, the investment book of record (IBOR) is a continued source of fascination and, for some, frustration born of experience. This year’s SS&C Deliver (the first combined SS&C and Advent annual user conference) brought out colorful IBOR experiences from buy-side technology chiefs and consultants, highlighting the concept’s indelible—if far from uniform—mark on the evolution of portfolio management and fund accounting.
Years after conception and a few years on from its more recent reappearance in industry parlance, it's fair to say the investment book of record, or IBOR, is an embattled concept-bruised and yet enduring. In a room filled with investment managers, major consultants and thought leaders on the subject, that duality was on full display. The message from panelists was clear: Anything worth doing with IBOR must be done with careful consideration and absolutely done right.
Over time, this calculus to create an IBOR has subtly changed, though the essential technology questions remain the same: How should an IBOR be rooted? Through an order management system (OMS)? Or, more efficiently, by using a real-time portfolio management tool that can take in trades and market data throughout the day to maintain an up-to-date view of the book? How extensive should it be? As smaller shops develop more complicated trading strategies and fund management responsibilities, and begin to carve out larger hosted and outsourced middle-office functions, these questions become tricky. Fortunately, in addition to software, there are operational services available to meet the challenges these firms face.
Data Quality: Only the Beginning
No matter where one starts, most managers new to IBOR will say they are striving for a "single version of the truth," which includes intraday or real-time position keeping, achieving the primary goals of monitoring operational risk, forecasting liquidity, trading and collateral management.
The exchange-traded funds (ETFs) specialist panelist noted, for instance, that daily net asset value (NAV) and indicative optimized portfolio value (IOPV) calculation is required for several new fund offerings. This new element proved a major IBOR driver.
"The accounting firms we work with wanted to strike the NAV the next day, but we needed it available today, and now have five funds piloting that," the panelist told the session. "As we've moved in that direction, increasingly we've found our portfolio managers trying to juggle too many things, especially reconciling with fund accounting, and we want to get everyone-managers, accounting, middle office-to be able to do their jobs with a centralized, comprehensive view of holdings and cash from which to make decisions." After years of preparation, they recently began implementing SS&C Advent's Geneva to solve for their IBOR needs.
Speed is also a factor. The US-based active fund manager panelist, also a Geneva user, cited increased need for a "gatekeeper" presence for their shop, where the investment teams act more autonomously and geography is more widespread. "We have multiple custom and vendor-backed solutions running at once and by creating workflows that are efficient, trading globally and with most operations in-house, you can have a quick turnaround to the next day," the active fund manager panelist explained. "We have three hours between North American close and Asia open. In that timeframe you're matching current trades, doing foreign exchange (FX) execution, daily account reconciliation, running batch and then blessing the next day's positions."
Along the way, the ETF specialist's CTO said, one often finds a fair bit of "custom engineering" to address accruals paid out, swaps, and portfolio rebalancing. But here, again, IBOR is not efficiency for efficiency's sake so much as external expectations around operational dexterity going up. "Institutional investors want someone who has industrial-strength technology," said Jong Baik , a Boston-based consultant at Alpha FMC. "So from a sales perspective, it's almost become a necessity, with demonstrated oversight and governance at that level."
Deft Touch and Custom Tailoring
To call it a necessity, however, is not enough-and when it comes to achieving IBOR buy-in, a deft touch is needed. The active fund manager, on one hand, said he ran into an interesting dilemma. "When it comes to making these changes and looking at outsourcing around IBOR, it's about finding common ground on solutions without exposing too much. For a firm that has been using its own proprietary tools for 20 years, it can be a scary endeavor," he said. His firm has thus taken a moderate approach and slowly begun to selectively tailor which workflows to outsource.
On the other hand, the ETF specialist had something else in mind for its IBOR: enterprise change management. Of course, gaining C-level support was crucial, but to achieve a heavier lift the CTO knew broader transparency and understanding around the project was necessary.
"The game plan is to achieve that net change-to get the right people focused on our 450 funds and not have multiple portfolio managers essentially playing support roles managing corporate actions or reconciliation," he said. "But to make the argument, it's not always about sunken cost. For the CEO, who is risk-averse, there is more confidence that risk would be mitigated as a result of this investment. And we knew the change management aspect would be critical too: We had to be transparent with the managers and our middle-office, to tell them how this would improve what we do, and also reassure them that this didn't mean they would all get kicked out [of the firm]."
... And They Will Come
Baik, agreeing, posited that a successful IBOR is therefore neither an inexpensive nor "quick and dirty" exercise, especially when the outsourcing mindset is slowly shifting underfoot for the buy side as connections like SS&C Recon and other SS&C Advent systems continue to strengthen. "People are nibbling at that as part of their IBOR projects, testing the waters and eventually doing more with it as that creeps closer to the front office," he said.
Indeed, even as the buy side gets more sophisticated about the possibilities, with more delivery options than ever, the crucial IBOR ingredient remains the same: patience.
"You need to do it right from the beginning, rather than trying to do it fast," the ETF specialist CTO concluded. "You'll have portfolio managers thinking ‘this is a middle-office thing,' but it's actually for them. If they don't know that somehow the OMS and their work is at the end of this, it won't work. So you own it: Tell them what's happening, what's not, and when. I see it this way: I'm building a home, but for this to work, people still need to come live in it."