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DELINEATING AND DEFINING THE DIFFERENT BOOKS OF RECORD: ABOR, IBOR AND PBOR
You may not have heard of the term PBOR before, but it is gaining traction in the investment management industry, particularly among vendors who offer investment performance measurement and data management solutions. The acronym stands for Performance Book of Record and describes various services and technologies that help consolidate data, calculate performance returns, and support strategic reporting analysis.
PBOR is a concept utilized by FinTech vendors, asset managers, and financial institutions actively working to establish a reliable Performance Book of Record. These projects have become a priority to increase transparency across direct holdings and underlying exposures and to support enterprise-wide data analysis during volatile financial markets.
In 2014, PBOR debuted in print and was initially seen as a marketing strategy by Eagle Investment Systems to promote financial technology. This skepticism was justified considering the prominence of Investment Book of Record (IBOR) solutions. Various concerns regarding the concept have come up in conversation, such as questioning how accurate Accounting Books of Record (ABOR) are, the association of performance with a book of records, and the distinction between PBOR and a performance measurement system.
These are all good questions to consider and why all sophisticated financial services companies, financial services institutions, asset management, and asset owner organizations need to consider a Performance Book of Record (PBOR).
Understanding the differences between an Accounting Book of Record (ABOR) and an Investment Book of Record (IBOR) is fundamental before defining a Performance Book of Record (PBOR).
Nowadays, accounting books of record aren’t always keeping up with the demands of today’s front, middle, and back office operations. This is where the middle office comes in. The middle office is crucial for any financial institution. Performance teams and other back-office staff continuously communicate with the middle office team because they find the necessary data and outputs they require to run reports. The Performance Book of Record (PBOR) and the middle office share a common goal: to provide detailed, comprehensive information on portfolios.
Just as a middle office handles tough questions from the front and back office operations, a performance book of record manages data across the enterprise to provide the necessary information for the entire team. Middle office personnel and PBOR solutions supply information for complex reporting for investment board packages, fund prospectuses, private holding valuations, and composite household reporting.
A Performance Book of Record (PBOR) supports all these complex information requests through a broad set of data and processes, such as:
- Firmwide security masters, characteristics, and analytics for all holdings and benchmarks constituents.
- Calculate reliable performance returns on each investment, cash balance, and underlying exposure.
- Organization of the lowest level fund share class entities up to the top-down views of composited strategies and client accounts.
- Risk modeling, scenario analysis, and stress testing strategies.
- Unified investment results and structured analysis are necessary for management and client reporting.
The power of PBOR can reveal valuable enterprise data, especially with in-depth analysis by our team at Meradia.
WHY DO YOU NEED CONSIDER NEW PERFORMANCE SYSTEMS?
PBOR, or Performance Book of Record, can provide your firm a clearer picture of the current status of its holdings and subsequent returns. PBOR combines data from multiple sources of accounting books, security masters, analytics, underlying exposures, market indices, and strategic benchmarks, along with all relevant firm and client data, usually encrypted, excluded and not stored in a performance system. This data coalesces to inform conversations between asset managers and asset owners. PBOR allows asset managers to answer increasingly hard questions and information requests ranging from “How was my total portfolio’s performance this year?” to “Where are my current investments misaligned with agreed strategies?” to “How can I better diversify?”.
The questions asked above can dive into areas that surpass the capabilities of most performance measurement systems currently available. PBOR platforms require extensive data governance efforts to manage the diverse layers of data necessary to analyze complex investment strategies, various asset classes, and overlaid managers. Also, PBOR should securely facilitate data science activities, such as data mining, as firms seek to unlock the true potential of their data.
It can get tiring when you try to manage all data sources, including internal and external sources. You need a team of professionals to identify data gaps, address issues, and ensure proper controls and audit trails are in place. Meradia’s consulting team has expertise in various systems and tools, such as performance systems, risk systems, database solutions, market data solutions, and reporting tools, to support your firm’s entire invest operations. We can identify the proper solutions to increase your team’s performance and reduce the number of issues and workload. PBOR’s unified nature is paramount for asset managers to maintain a well-defined industry standard. It’s important to note that relying solely on performance solutions is insufficient to tackle these complex challenges, so they are not considered the ultimate solution.
Are you struggling to manage the growth in your financial services business? Do you need an answer to help address operational issues caused by mergers, acquisitions, or divisions? With Meradia’s help, a PBOR system will streamline your assets and fund product returns, creating a client-ready information hub.
PBOR OR A MIDDLE OFFICE OPERATIONS PLATFORM?
Investment Managers need platforms to effectively manage firm-wide asset data and performance results to navigate a sea of data requests. These platforms are crucial for middle office staff, whether they’re called performance books of record or something else. They enable accurate performance measurement based on daily security and sub-security level rates of returns, providing valuable analysis and risk information.
Producing and maintaining accurate performance data on a daily basis is no easy task. Even the best accounting systems fall short, leaving investors with incomplete or unreliable information; thankfully, PBOR is a reliable solution. With PBOR, you can say goodbye to outdated and inaccurate data. PBOR also caters to the complex needs of multi-strategy funds, overlay managers, and layered benchmark or policy targets. It’s the perfect solution for any enterprise looking to stay ahead.
Legacy accounting books and newer investment books of records lack critical views of notional exposures, financial transactions, look-through on structured instruments, and the granular security analytics data needed to align portfolios to benchmarks and produce sophisticated attribution analysis and other strategic analysis that portfolio managers require to explain the value of a investment manager’s decision to clients.
THE DATA GAP IS BEING FILLED IN THE INVESTMENT PERFORMANCE INDUSTRY THANKS TO PBOR
Asset managers and asset owners are clearly aware of the operational challenges discussed here. Many have initiated programs to improve data management and strengthen risk management platforms. Consolidating these office operations issues into a performance book of record (PBOR) is one of the best strategies because it addresses the complexities of enterprise data governance. Defining this problem as a PBOR is directly related to the main question asked by most investors:
“How are my investments performing?”
The answer lies in the daily performance return of each asset, currency, and underlying exposure. While calculating investment returns may seem simple, today’s global asset managers investor must tackle the complex issue of creating a performance book.
Font and back office and middle office functions can work together to help performance and the overall process of companies, including their compliance, risk, legal, and reporting to portfolio management teams. This collective is commonly called the middle office in asset management organizations. The backbone of the middle office in today’s industry is a Performance Book of Record (PBOR) platform.
HOW MERADIA CAN HELP WITH FRONT, MIDDLE, AND BACK OFFICE FUNCTIONS
When an asset management organization is ready to address complex challenges like rationalizing systems or implementing a new platform, Meradia suggests taking a data-driven approach and learning from like firms. Don’t underestimate the importance of incremental value and resilience in risk management.
Meradia brings a comprehensive toolkit to the table to help clients solve business process outsourcing and technology challenges, including proven methodologies and skills to:
- Architect enterprise data platforms
- Develop information delivery strategies
- Identify appropriate vendor partners, tools, and platforms
- Integrate and transition new solutions to production
- Provide strategic guidance on building a Performance Book of Record
Reach out to us today and find out how we can help you with risk management, front and back office jobs, middle office personnel, investment banking, and more!