The performance reporting needs of a small, domestic funds manager can be less different from that of a global behemoth than you might think, writes DST International CEO, IAN MATHIESON.

When we consider the importance of scalability in performance solutions, it is often assumed that this characteristic is only applicable to huge firms with hundreds of thousands of accounts and millions of positions, when in fact we regularly see mid-sized, or even small managers, producing more analysis than firms with far higher ‘volumes’, in the traditional sense.

A good example of this is one of our institutional clients, which manages less than 800 portfolios but produces over six million return and attribution statistics per day. This puts them in the same ballpark as a wealth manager providing daily account level returns for its five million clients. In fact it is often the smaller, more specialised investment firms that require more detailed analysis for their clients and portfolio managers. A major differentiator for such firms is the ability to offer a highly personalised and customised service, and this inevitably brings with it the burden of producing very detailed and specific analysis and reporting.

A further point in need of clarification is the definition of a scalable performance system. It is sometimes assumed that as long as you can horizontally scale and achieve extreme processing scalability, the job is done. However, this is only one piece of the puzzle. The reality is that in the absence of operational scalability it really doesn’t matter how quickly you can churn out millions of numbers, if at the same time you don’t feel confident when you distribute them to your clients because the numbers remain unchecked and unproven.

In order to achieve true scalability, the solution simply has to be exception driven. It must alert the performance team to possible issues with data and results without the need for them to ‘hunt around’ for problems. The flexibility of this exception or tolerance checking becomes more crucial as markets evolve and become more complex and differentiated. We see asset managers diversifying from traditional investments such as equity and fixed income into derivatives, both exchanged traded and over-the-counter, as well as private equity and real estate. All of these investments have their own unique return profiles and unless the system recognises this diversity, too many exceptions and ‘false positives’ will be raised and the performance team’s time will be wasted.

This is a key element in the scalability value proposition, the largest organisations may be in a position to hire an army of performance operations analysts to ensure the quality of their output, but this is certainly not a luxury smaller firms can bear. While technical scalability is certainly important for smaller managers, operational scalability is absolutely essential to ensure costs are controlled and benefits achieved. Therefore I believe scalability should be a major consideration for all asset managers when selecting a performance solution. But is this true of globalisation?

When we think about globalisation and its impact on performance, we usually focus on large organisations with a global presence spanning several geographic regions. It is interesting to consider the requirements a performance system needs to address in order to achieve an effective ‘global operating model’:

1. Support for multiple locations on one central database/application

2. Support for 24×7 access to the system across all time-zones

3.Allowance for one region to operate unimpeded by other regions operating simultaneously on the same system (e.g. allow processing and calculations to occur in one region, while another is reporting and yet another is loading data, without negative cross region impact)

4. Support data feeds from multiple internal systems across regions

5. Allow data feeds to be processed as each market closes without impacting the other regions

6. Support wide-ranging access control to ensure each region can only view and manage its own book of business, maintaining strict Chinese walls

7. Support comprehensive multi-currency and multi-asset class analysis

When we look at these requirements more closely, we see that the fundamental requirement is to be able to meet the service level agreements (SLAs) of different clients and business lines – which in this instance happen to reside in different regions and time-zones.

However, let’s consider a domestic organisation with several business lines – for a simple example, let’s say they are institutional accounts and private client wealth management. In order to run both books of business on a single system we have to fully address the differing requirements of each business line.

The institutional clients create more revenue and demand more detail (and probably more often), while the private clients bring in less fees on a per account basis and require less detailed analysis, perhaps less frequently. The performance system needs to be able to interface with two back-office systems, produce the results on a priority basis and offer the ability to scale the analysis and reporting based on the value and demands of the client.

While analysis and reports are being executed against the results of the institutional portfolios, the private client computation should be able to get underway, with no contention experienced either way. During the day the performance analysts and client relationship managers require the ability to calculate ad-hoc analysis and make data corrections in order to provide updated reports, to meet their clients’ SLAs without having to worry about the impact their actions might have on other business lines operating on the same system.

The core insight is clear: the demands of a firm with several business lines are not significantly different from those of a global organisation. It still wants highly automated centralised analysis along with the flexibility to meet the needs of multiple clients with differing SLAs.

At DSTi we have recently released what we are calling our ‘Global Operating Model’ in our Performance solution. We initially designed this based on the requirements of one of our large institutional clients with a global presence, and the need to efficiently calculate and distribute standardised analysis across all of its offices. However during the project’s design phase we realised we should expand the project scope somewhat, in order to meet the requirements not just of global organisations, but also the growing requirements of complex small and mid-sized managers. In fact, we realised that their requirements are fundamentally very similar. Maybe the Global Operating Model should be rechristened the Complex Operating Model …

I would conclude that all organisations considering the implementation of a new performance and attribution system, whether they choose something off the shelf from a vendor or opt for an in-house build, should consider processing and operational scalability as major project objectives. Additionally, while true globalisation is not a primary consideration for all investment firms, the drivers behind it and the potential benefits arising from it are highly applicable to all firms that want to ensure their operations are both flexible and highly automated – and ultimately, that their costs grow less rapidly than their revenues.

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