Portfolio rebalancing is a persistently tricky problem for investment managers to address, which is why successful platforms in this space must be designed from the ground-up to handle complex rules and deal with large order loads across strategies, geographies and business lines, while addressing configuration subtleties across account structures and desks.
The premise driving the development of Advent’s Genesis portfolio rebalancing tool is not pre-trade compliance, but rather it is a beefy solution designed specifically for portfolio managers that uses visualization to achieve greater rebalancing efficiency. One typical challenge for investment managers in this area is the order generation that accompanies it—which takes time, and sometimes a lot of it.
Among the audience at 2017’s SS&C Deliver conference in Chicago, where Genesis was recently launched, more than 80 percent surveyed said it takes at least a day to run a major strategy change or rebalancing program at their firm; almost 20 percent said it takes more than five days. Meanwhile, a separate poll showed that only 17 percent were happy with having portfolio positions available once at the beginning of the trading day, while twice that number want this data in close to real time, and the rest require regular or scheduled updates on an intraday basis. In other words, rebalancing has a reputation for being too slow, just as appetites for positional-level data are accelerating.
Rebalancing Meets Advent
Genesis, therefore, is first and foremost a triumph of speed. By running the software-as-a-service tool entirely through the cloud, Advent can run two-way integration with Genesis and its Moxy OMS using infrastructure that enables scalable vertical—in-memory grid—and horizontal nodal expansion. This, when combined with further optimization techniques borrowed from processing-intensive industries like shipping and airlines, allows Genesis users to run thousands of accounts in a minute across various kinds of portfolio models—whether static, dynamic, or sleeve structures.
The Advent team also focused on several areas of the tool’s design. In particular, beta clients working with Advent suggested that the tool should be designed to reflect a high level of collaboration. A number of challenges were prioritized as a result: creating user experience that crosses competencies, configurable data surfacing and filtering up of relevant holdings for analysis and potential adjustment, and permissioning and tracking of actions taken for future audit analysis. Throughout, the objective was a bridge between the portfolio manager and OMS with functionality that can key into exceptions, provide the user with a flexible array of rebalancing options, and efficiently create the orders to feed decisions out across other portfolios as widely or narrowly as appropriate.
On a practical level, much of that collaboration happens in the tool’s rebalancing Session dashboard. There, individual “review status” workflows allow multiple managers to view hypothetical modeling changes, order creation strategies, and alerts for potential errors, and invalid pricing or models that are missing. The Session grid visualizes the alignment between models and holdings, legacy exposures and potential over-weighting with full model editing capability. For instance, the “linking model feature” for US equities enables existing Moxy clients to define one sleeve that can be reused across multiple allocation strategies, define low-high limits and tolerance bands, and test exceptions.
Once Session drafts are edited and published, the two-way integration takes the orders to Moxy (or exposes them to additional rules, as required) to be filled, and this integration becomes even more impactful at an institutional level. Typically, after a rebalance, portfolio managers will move to a separate spreadsheet to calculate the impact on additional portfolios. In Genesis, a separate space instead provides the option to work on these additional accounts either by direct or indirect association, and a “follow lead trade” engine that can apply orders elsewhere in real time.
Before Orders, Ideas
With a strong foundation in place, the Genesis development team has already proposed a number of future features for the tool, including order blocks, tackling more complex mandates, partnering with industry on fixed-income portfolio modeling, benchmarks and credit quality, and deeper transparency into fund exposure to underlying instruments.
Perhaps equally important is what the team insists Genesis is not: Advent Rules Manager™. That will remain Advent’s primary tool for pre- and post- trade compliance, even if more of its rules will eventually be available to apply within Genesis over time. Keeping the two tools separate is part of a larger drive toward user personas, and recognizes that portfolio rebalancing demands a flexible working environment for portfolio managers as they creatively implement investment committee decisions across accounts and strategies.
Call it a recognition that before trade orders come ideas. The space to properly vet them—and efficiently project them—now comes with suitable compute power and functionality.
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