April 2013: The Naming of Parts

In William Shakespeare’s Romeo and Juliet, Juliet’s famous line, “A rose by any other name would smell as sweet,” is often used to support the assertion that the names we assign to things are largely inconsequential when compared with their qualities. Like so many of Shakespeare’s better-known lines that have worked their way into everyday parlance, it’s a logical and stunningly simple observation.

This theme of arbitrarily assigning words to things crops up twice in this month’s issue of Waters: Anthony Malakian’s buy-side risk management feature, and James Rundle’s investment book of record (IBOR) feature. In his risk feature, Anthony quotes a New York-based hedge fund manager: “When it comes to risk management, looking at what people are doing today as opposed to before, my intuition tells me that not much has changed, although the names that people use for things have changed,” insinuating that even though risk management approaches appear to have evolved recently, they actually haven’t changed at all. “Since the financial crisis, there’s been a whole industry created to come up with new names for Value at Risk (VaR),” the manager continued, underlining the notion that simply re-tagging things with new names has no effect whatsoever on their qualities.

In similar vein, in his IBOR feature, James describes the various business processes that loosely fall under the “IBOR” umbrella, a new, catch-all term that formalizes the practice by which buy-side firms draw together data sets generated across the enterprise, from position-level data emanating from the front office to accounting data from the back office. The reason for this commingling exercise is so that buy-side firms can generate a single, consistent and reliable version of the truth so that they know with a great degree of granularity and certainty where they are at the start of every day.

All buy-side firms worth their salt would have been doing something along these lines since their inception, although what IBOR adds to the mix is focus and substance to what otherwise might be described as a somewhat nebulous concept managed on a laissez-faire basis.

Granted, IBOR is more an operational that a technological initiative, and, consistent with most other operational objectives in the financial services industry, there are no start and finish lines, just good and bad practices. Practically, the IBOR drive is many things, although new is not one of them. The processes that typically constitute buy-side firms’ IBOR programs have been around for decades—it’s just that now, when drawn together and formalized, they increasingly fall under the IBOR moniker, just another name for the same old parts.