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Working with investment performance transformation projects are known for being difficult and time-consuming, but why? Investment performance is primarily a company’s data and how it functions behind the scenes. When executed properly, this process creates a diverse mix of internal and external data streams, reflecting the function’s impressive scope. Moreover, the outputs of Performance and Analytics are highly sought after across various departments within a firm, each eager to access and scrutinize the resulting insights. Transformations in investment performances are daunting endeavors, necessitating an advancement in managing and utilizing the firm’s expansive data resources, with implications that ripple across nearly every facet of the organization.
The term Performance Book of Record (PBOR) is gaining traction as the go-to term for an Investment Performance dataset. Yet, its significance from a data perspective is often overlooked. Essentially, a PBOR is a collection of data that equips performance analysts like Meradia to address challenging questions regarding data lineage, risk management, slight variances between accounting bases (such as ABOR vs. IBOR), front, middle, and back office operations to pinpoint where it all comes from.
This blog will explore the distinction between investment performance and data management among financial service companies. We will review topics like Business Case for Starting Data Governance Programs with Performance and Reporting, Leading with the Data in Performance Transformation efforts, The Importance of KPIs to Measure Data Activities, and What Performance Teams could Learn from the Chief Data Office. Read more here.
INVESTMENT PERFORMANCE HELPS MANY FIRMS, EACH WITH UNIQUE DATA NEEDS
Investment performance can help many asset managers who work in or outside a client-facing financial services firm. One of the key views to include in this type of Performance is portfolio management and how it can represent your investment front office personnel. Other back office and middle office personnel need to ensure the rules are followed within departments like compliance, legal, marketing, sales, and more to get more business.
Firm management and risk management also can provide an understanding of how trends and performance returns work when compared to other financial institutions. A reliable financial services institution can provide:
- Some of the very best back office functions.
- Electronic trading systems.
- Other corporate strategies that can all be seen through investment performance.
To get this kind of data, a financial institution needs a specific technology that can help support investment performance function to where it consumes, cleans, and processes a ton of data. Working with this kind of data activity can take hundreds of back office jobs and other combined front office and middle office operations.
How Investment Performance Services Can Help Back Office and Middle Office Functions
Meradia can provide investment services firms with an alternative solution for their back and middle office operations through in-depth analytics and reports. One of our investment management consultants would identify specific performance metrics to benchmark within the firm to monitor the client’s portfolio. This includes offering risk analysis or other features to make important decisions within these functions. Also, these services can help give a firm more accurate calculation of returns with accountability in mind for their clients. Overall, investment operations can take all office groups to the next level by giving a better idea of strategy and growth within the organization.
PERFORMANCE MATH HALO DOES IT A DISSERVICE
Performance analysts find the portion of their job that talks about data to be the most time-consuming. Most people think that if someone has a career in finance, they will be focusing on mathematical exercises and consequently, deterring folks from data management jobs. However, Performance Operations involve more than just math.
Why do Financial Services Companies despise data management so much?
A lot of investment banking firms think of data management as tedious work. There are other issues as well, like experiencing a repetitive cycle, data issues, stressful situations, and more.
This effort is critical as Performance departments play an incredibly important part in the quality and completeness of organizations’ core investment data assets. So much so that Investment Performance departments ought to rename themselves “Middle Office Staff – Data Management and Investment Performance” as the department title simply referring to the group as “Investment Performance” belies the function’s true importance, role, and potential.
PERFORMANCE IS A PROXY FOR ENTERPRISE DATA MANAGEMENT
We recently worked with a prominent Asset Manager who wanted to improve their Accounting-based (IBOR) security master set. They also wanted to incorporate ABOR and the universe of securities not held in their benchmarks. To gather requirements, they reached out to various departments such as Portfolio Management, Client Reporting, Marketing, Compliance, Risk, and Performance.
The Performance department and its supporting technology team had been maintaining a security master for years. This was crucial because calculating bottom-up relative performance contribution requires normalizing the accounting and benchmark view of security identification. By recognizing that Performance is a representation of enterprise data challenges, we can bring about better outcomes by prioritizing individuals who have a genuine passion for data rather than just mathematical expertise.
This shift in mindset also leads to a different approach when considering tools. Instead of seeking aspirational tools based on assumptions, it opens up conversations about finding the best tools for the specific tasks at hand. This collaborative outlook ensures that we are utilizing resources effectively and efficiently.
Performance Reports Should Include Risk Management and More
Performance as a proxy for enterprise data usage can be exemplified by its role in account and product reference. When it comes to performance reports, it is crucial to present the results in a way that aligns with our clients’ preferences. This demonstrates how Performance seamlessly enhances core assets to increase their usefulness.
Although an organization’s account master may primarily cater to accounting and client reporting needs, Performance still takes it to the next level by accommodating additional use cases. It is important to note that while Accounting and Client Reporting cover some use cases, they need to be more comprehensive.
One area where most account masters fall short is meeting the requirements of marketing and GIPS® (Global Investment Performance Standards). These standards often involve specific fields that are not included in standard account masters, such as “Strategy Termination Date,” “Investment Vehicle Sub-Type,” or “Tax/Withholding Status” utilized in composite inclusion logic. Here, Performance Reporting addresses these gaps and provides tailored solutions for bespoke client requirements.
Once again, Performance fills the void left by core systems and offers a complete perspective on the diverse use cases within the organization. Embracing performance as part of our enterprise data strategy means comprehensively understanding our data landscape and effectively meeting our clients’ needs.
CONCLUSION
Like the story of the Dutch boy saving Holland by putting his finger in the dike, the performance department keeps the operational dam intact. To truly grasp the potential of Performance Transformations, one must first understand their crucial role in filling the gaps within a firm’s enterprise data. This understanding reveals growth opportunities and uncovers the complexities inherent in legacy systems, where organizational workarounds must be carefully examined, preserved, or modified.
While many may assume that PBOR (Performance Book of Record) is important for its representation of performance outputs, its true significance lies in its ability to serve as the comprehensive dataset needed to support a mature Investment Performance Operating Model and its robust analytics. Changing PBOR is challenging, as it involves altering critical components of a firm’s data infrastructure. Stay tuned for our series on Investment Performance Transformation.