COMARCH

ASSET MANAGEMENT System for operating investment

management process

CAPITAL MARKETS

Banking, Insurance & Capital markets

2

Introduction

The capital market is facing new challenges in the 21st century. Ongoing

political and economic integration seen on the international arena, international

organization membership, advocating globalization of financial markets,

an increase in the volume of financial assets quoted on individual markets,

the growing importance of global institutional investors, as well as the progressing

level of complexity of systems responsible for the trading of financial instruments

and conducting settlements, drive the constant growth of requirements

that IT systems, responsible for servicing capital market institutions, must meet.

On the one hand, modern tools at the disposal of commercial and mortgage

banks, brokerage houses, investment and pension funds and specialist asset

management companies, should provide the possibility of servicing a full

catalogue of operations available on the market, on the other hand they should

facilitate a greater extent analysis and processing of available information

obtained by interfaces to external systems. The basic aim is no longer

the streamlining of current operations, but the possession of a system

that provides detailed information concerning the risk and effectiveness

of investments. In order to meet the market expectations described above, Comarch

has developed the Comarch Asset Management system, which is responsible

for the comprehensive servicing of financial institutions engaged in running

investment portfolios and asset management.

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The Comarch Asset Management platform is addressed

to financial market institutions specializing in asset

management, both on their own and when commissioned

by customers. The broad target group of the Comarch Asset

Management system results from the fact that the system

enables processing both the typical back-office operations

connected with investment portfolio service (e.g. registration

of the company’s and customer’s orders, conducting

operations connected with assets included in investment

portfolios, conducting settlements), and typical front-office

operations complemented with analytical functionality

(e.g. order and transaction service, order generators, portfolio

structure analysis, liquidity analysis, portfolio valuation, control

of investment limits, evaluation of management effectiveness).

It is also worth mentioning that the system is equipped with

a functionality which services both large volumes of small

investment portfolios (e.g. order generators, ’wholesale’

service of several investment portfolios, executing

simultaneous functions for a group of portfolios), as well

as being indispensable for the servicing of very large investment

portfolios (e.g. a complex valuation mechanism or an investment

limit control mechanism).

System’s Target Group

The Comarch Asset Management platform is a comprehensive tool that automates the process of as-

set management, fund and portfolio bookkeeping, market risk management and performance meas-

urement. The set of solutions included in the platform is addressed to:

• investment funds

• insurance companies

• pension funds

• institutional asset managers

• bank depositors

• private banking

• wealth managers

• ...and other institutions involved in the business

of investment portfolio management.

4

Application structure

Comarch Asset Management consists of several integrated

modules which can be grouped into five main areas.

Portfolio Management – this area includes a broad functionality

dedicated to asset managers and should be considered

as a comprehensive tool that automates the process

of asset management, implementation of investment decisions

(incl. simulations, generators), registration of orders

and transaction settlements, pre- and post-trade compliance,

investment limit queries and investigations, portfolio

modeling and rebalancing, fee calculation, providing current

information on assets under management, cash-flow forecast

and integration with market data providers and counterparties.

Due to the advanced functionality of transaction recording

and performance management, the system covers MiFID

requirements and reporting in accordance with GIPS™ and AIMR-

PPS™ recommendations.

Risk Management – this area enables complete supervision

of the market risk management process. The user has access

to the functionality that allows for active risk assessment

of the managed portfolios using self-created analyses

and verification of the correctness of the used solutions

and management strategies. While supporting a wide range

of financial instruments, the system uses complex derivative

market products which are able to hedge business risk areas.

The application allows managers to make more effective

investment decisions, allows issuers to increase

their product range and entrepreneurs to focus on

their core business, which translates into an increase

in the competitiveness of the institution on the market.

Performance Measurement and Attribution – this area

enables the user to assess the strengths and weaknesses

of the chosen investment strategy and thus make appropriate

investment decisions that maximize profitability and minimize

the portfolio risk. The ability to make more effective investment

decisions translates into an increase in the profitability

of the managed portfolios, and thereby increases

the competitiveness of the institution.

Fund Valuation – this area mainly covers portfolio and fund

bookkeeping, valuation, payments and settlements. The system

processes financial and quantitative bookkeeping, stores

all transactions and payment orders, enables appropriate

disposal processes of blocks of instruments during a sale,

handles settlements and deliveries, calculates commissions

and eventually valuates and generates reports. It is possible

to define an algorithm for market selection and select

quotation methods for pricing purposes. Due to the advanced

functionality, which manages investment limits, the system

enables the creation of a company investment policy under

the applicable law and the adaption of company investment

policy to both internal and regulatory needs.

CUBE Analysis Tool – an independent module of the Comarch

Asset Management platform. It is dedicated to analysis

and ad-hoc report creation. The CUBE Analysis Tool is designed

for easy use by anyone, not only by skilled power users such as

IT developers and programmers with advanced technical skills.

CUBE facilitates reporting on portfolio structure and investments,

transaction history and valuation. Drag & drop and slice & dice

utilities enable the efficient and user-friendly creation of ad-hoc

reports and analyses. The CUBE Analysis Tool allows the user

to create both flat and matrix analyses.

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The functional scope of the Comarch Asset Management platform

supports all the operational areas of insurance, investment

and pension funds, asset management companies

and depositary banks. The system competence map covers areas

such as online operations, support of investment processes,

valuation and bookkeeping, as well as risk and performance

measurement. The Comarch Asset Management platform

is a modular system, providing customers with solutions tailored

specifically to their needs.

Online operationsIt is possible to efficiently monitor and manage the current

composition of investment portfolios due to the functionality

of operation desktops with multiple data sheets. Desktops

present the composition and value of portfolios allowing

for operations conducted during the day supplied by current

market quotations. Each user can parameterize their own

desktops, which are composed of sheets presenting portfolios,

in various sections. These consider the type of instruments,

based on a set of columns, filters and parameters. The most

valuable desktop functionalities are comparisons to various

models and simulations which allow asset managers

to create their own list of orders and share it with other users

to create a common investment strategy. From the desktop level

it is possible to view operational history on a given portfolio

position and to perform immediate orders and transactions

using functions of the context menu. Desktops also provide

a view of newly prepared or placed orders and information

on their progress.

Model portfolios and benchmarks Model portfolios are constructed on the basis of quantitative

or percentage instrument composition, duration segments

or other model portfolios. Besides indicating the target structure

of investment portfolios, the principal deployment of model

portfolios, consists of the mapping of stock exchange indexes

and benchmarks. Construction of benchmarks can be based

on indexes, instrument yield, model performance, inflation

or a combination of other benchmarks.

Order managementThe process of order creation and settlement is composed

of several steps, of which the following should be mentioned:

preparing an order proposal, control of investment limits

and coverage of instruments and financial means, transaction

list control, registration of orders, combining orders, initial

realization of orders, allocation of realization on portfolios

and final authorization of order execution. Orders can be

created individually or by using a mechanism for automatic

order generation, based on a comparison of the portfolio’s

content with the model portfolio, declared participation

of an instrument, declared sum or other directions

of the manager and many other algorithms implemented

in the system. Orders can be realized individually or by using broker

interfaces. Exceeded limits are subject to additional authorization.

Orders, which need authorization, may be managed by other users

with appropriate privileges. According to MiFID requirements,

the system provides complete information about the transaction

path, including a justification of the investment decision

which allows a department of internal control to monitor trade

transparency and portfolio investment strategy compliance.

Investment limitsBoth internal investment limits (strategic, tactical) and limits

resulting from legal regulations concerning the managing

institution, and its customers, are defined in the system.

The range, characteristics and instrument valuation method,

included in the limit as well as the control level of the limit (total

for all portfolios, groups or investment strategy) are specified for

each limit. Limits can be controlled for branches, issuers, banks,

issues, contractors and dealers. The operations update range

is defined for limits controlled online (pre-trade compliance).

A restriction list for instruments or ratings can be defined for

each portfolio.

Financial instruments serviced by the systemEquities, bonds, money bills, treasury bills, deposit certificates,

investment certificates, participation units, commercial papers,

letters of deposit, rights on equities, subscription rights, shares,

futures and forward contracts, FX Swaps, FX Options, FRA, IRS,

CIRS, warrants, currencies, commodities.

Functionality description

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Performance measurementPerformance is calculated based on the gross and net value

of the portfolio’s clearance unit. Besides the absolute rate

of return, the system calculates relative rates in respect

to benchmarks and performance indexes corrected by risk

(Time Weighted Return, Money Weighted Return, Jensen,

Treynor, Sharpe, Sortino, Tracking Error, Information Ratio).

Performance is set at the level of a particular instrument,

sector, region, currency or portfolio and is aggregated for groups

and investment strategies.

Global Investment Performance Standards™The valuation of portfolios and calculation of management

performance is in accordance with GIPS™ and AIMR-PPS™

recommendations. Performance calculation takes into

account the period when the portfolio belongs to a composite

and the minimum required level of assets as well as significant

cash-flows.

Performance attributionThis functionality enables an active performance assessment

of the impact of individual assets on the overall outcome

of the investment portfolio. It helps portfolio managers determine

the investment features which contribute to a better or worse

performance of the portfolio than the benchmark. Among

possible attribution models are Brinson-Hood-Beebower, which

calculates allocation, selection and interaction effects for equities

and additional duration effects for fixed-income instruments

(presentation by duration segments).

Derivatives and structured productsThis functionality gives investors the opportunity to use

financial instruments which could adequately hedge risky areas

of their activity. The system allows calculating the current value

of instruments (futures and forward contracts, FX Swaps, FX

Options, FRA, IRS, CIRS) in the portfolio, as well as to estimate

the actual price of the instrument prior to its acquisition

on the market or directly from the seller. It gives the investor

grounds for price negotiations with the institution offering

the financial product.

Risk ratios and statisticsThis functionality enables active risk assessment of investment

portfolios by identifying risk factors and gives a clear

and quick view of the current portfolio situation. This can be done

at different levels of aggregation, according to accepted

standards of presentation. The system enables calculating risk

ratios (Value at Risk), sensitivity ratios (duration, convexity, PVBP,

beta, etc.) and statistical indexes (volatility, correlation, etc.).

'What if' scenario analysisThis feature enables active assessment of the impact

of the portfolio position’s potential changes with regards

to its value or calculated ratios. It increases the efficiency

of portfolio management by maximizing returns and minimizing

investment risk. It creates analysis based on quantity, shares

or the instruments’ value simulation or designed virtual portfolios.

The functionality also provides the option to alter market data

according to historical scenarios, considering large stock market

fluctuations (stress testing) or user-initiated changes (e.g. yield

curve shifts).

BacktestingThis functionality helps to verify the correctness of the risk

models based on historical data (backtesting), which minimizes

the consequences of incorrect model usage. The available

backtesting methods are a simple P/L vs VaR comparison

or more advanced statistical tests (Kupiec, Berkowitz).

Portfolio optimizationThis functionality supports investment decisions with suggestions

to buy or sell indicated instruments. These suggestions are

the result of matching the portfolio to the structure specified

by user optimization criteria, such as risk minimizing

(e.g. VaR, Variance, Tracking Error) or effectiveness maximizing

(e.g. Sharpe, rate of return, information ratio) according

to Markowitz’ optimization theory.

Performance and Risk Management

7

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ValuationThe value of instruments can be set on the basis of purchase

value, discount and premium amortization, market valuation,

yield curve or an effective interest rate. The system calculates

the value of interest on cash, deposits and instruments.

The value of the portfolio unit is calculated on this basis.

A separate record of the number of gross and net units,

of the portfolio, is run in the system. An important element of the

valuation process is the accrual and settlement of management

fees and other costs deducted from portfolio assets. Calculation

of yield curves includes spot and swap rates, theoretical curves

and forward curves.

Fees and commissionsFor means of record and valuation control, tables

of management, transaction and administration fees

are defined on the basis of agreements with customers.

Basic types of management fees are fees calculated from portfolio

value, from results above the benchmark and fixed lump sum fees.

Additionally, the method for the accrual and charging of fees

is defined together with methods of remission and deferment

of fees. Transaction fees include broker’s fees calculated

by value or the amount of instruments within the transaction

with allowance for brackets, lower and upper levels, types

of instrument and the market and currency of the operation.

The definition of transaction fees also includes fees for settlement

institutions. Administration fees concern the costs of running

accounts, storing and valuation of assets.

Parallel valuationsThe Comarch Asset Management platform allows securities

pricing using three different methods for one and the same

date. One of the methods may be customized to local law,

the other can be used for capital group reporting purposes

and the final one may be IFRS. Values which are the result

of different valuations are maintained as the outcome of the

calculations and are used for presenting purposes.

Valuation and Fees

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Primary and secondary marketOperations on the primary market include registration

and settlement of individual and collective offers for

subscription and bids. In the case of bids, the service of rolling

and enrolments is offered for new issues using subscription rights

and advance payments. Registration of enrolments for purchase

and exchange bids takes into consideration the assumed yield

and duration of particular offers and weighted yield of collective

offers. One of the functionalities of the secondary market, besides

the registration of classic transactions on the interbank market,

is the – recording of opening, closing and withdrawals from

BSB and SBB transactions and initial purchase agreements.

The transaction authorization function enables the modification of

dispositions in such a way that the selected blocks of papers can

be sold regardless of the defined method of selling instruments.

Operations and rights on securitiesThis functionality covers operations most frequently conducted

on the market, e.g. splits, assimilations, conversions, redemptions,

interest payments, as well as granting and terminating

subscription rights and payment of dividends in cash, equities

or participation units. Moreover, it is possible to conduct

non-standard conversions of instruments in fractional amounts

with the equivalent for non-allocated instruments.

Financial operationsIt is possible to register external payments into and outside

of the portfolio, realizing them independently of the manager.

In addition, the system provides mechanisms of automatic

settlement on the basis of transactions and operations

conducted on portfolios. The module includes individual

and collective registration of bank deposits, service of loans

and credit lines.

Securities disposal methodsWhen an asset sale is made the packs are dispersed according

to the method defined for a fund. The following instrument

disposal methods are available: HIFO, FIFO, LIFO.

Records and bookkeepingOperations are registered based on entries in balance

and non-balance accounts within a dedicated plan of synthetic

and analytic accounts. Each disposition has its own set

of bookkeeping schemes. A register of all dispositions

(including correction entries) is conducted by the system, with

an indication of time and the registering person stating compliance

with IAS and MiFID requirements.

Operations and Bookkeeping

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The reports module The Comarch Asset Management system provides a set

of professional reports, which enable the presenting and analysis

of investment management results using various methods.

All information from the reports may be easily exported

to MS Excel or to PDF files. Using the report scheduler, the

user can set the predefined report launching rules in advance.

This significantly reduces operational costs.

CUBE Analysis ToolApart from the predefined reports available in Comarch Asset

Management system, Comarch provides the CUBE Analysis

Tool as an application that allows you to perform ad-hoc cross-

analysis on the basis of widely configurable views, tables

and charts using data from various sources.

Key features:

• data cubes – keep certain groups of data loaded from external

systems in accordance with a user-defined frequency,

at which the analysis is created

• configurable analyses – enable the configuration of tables

and charts presenting the available information from

the data cubes, in terms of adding and deleting predefined

dimensions and measures, creating filters and recording

the set up tables in order to accelerate their rebuilding

in the future

• openness of the system – this proprietary database

application allows you to supply data from various sources

according to previously agreed specifications.

Reports and Analyses

11

Integration

Data Exchange with other systemsThe Comarch Asset Management solution has been designed

in such a way as to enable flexible data exchange with several

external systems. It facilitates businesses with automating

operations, aids the work of users and, in effect, increases total

effectiveness by means of straight-through processing.

Particularly crucial interfaces, from the Comarch Asset

Management system’s viewpoint, include the following:

• interfaces to online market information systems that enable

the constant import and processing of information streams

containing current quotes and transactions

• interfaces to information systems through which stored

catalogue data is updated (e.g. information about financial

instruments, interest, ratings and industries)

• interfaces to transaction systems used by brokers and other

entities that organize the trading of financial instruments

– the export of orders, as well as the import of transactions

concluded on the accounts of investment portfolios,

is possible

• interface to the general ledger: the turnover on Comarch

Asset Management accounts is mapped to general

ledger accounts or exported to operations connected with

the investment process (e.g. trades, corporate actions,

financial operations, valuation)

• interfaces to accounting and clearance systems responsible

for operating

• interfaces to popular office applications (e.g. spreadsheets,

word processors) that facilitate the export of data from

investment portfolios maintained by the Comarch Asset

Management system to these applications.

www.finance.comarch.com

www.comarch.com

Comarch Spółka Akcyjna with its registered seat in Kraków at Aleja Jana Pawła II 39A, entered in the National Court Register kept by the District Court

for Kraków-Śródmieście in Kraków, the 11th Commercial Division of the National Court Register under no. KRS 000057567. The share capital amounts

to 8.051.637,00 zł. The share capital was fully paid, NIP 677-00-65-406

Copyright © Comarch 2011. All Rights Reserved. No part of this document may be reproduced in any form without the prior written consent

of Comarch. Comarch reserves the right to revise this document and to make changes in the content from time to time without notice. Comarch may

make improvements and/or changes to the product(s) and/or programs described in this document any time. The trademarks and service marks

of Comarch are the exclusive property of Comarch, and may not be used without permission. All other marks are the property of their respective owners.

EN 2011

Comarch is a leading Central European IT business solutions provider specializing in forging business relationships that maximize customer profitability while optimizing business and operational processes. Comarch’s primary advantage lies in the vast domain of knowledge accumulated in and applied to our software products. These products incorporate highly sophisticated IT solutions for businesses in all vertical sectors. Comarch has a multinational network of offices employing over 3300 highly-experienced IT specialists in Europe, the Middle East and the Americas.

Poland

Comarch Headquarter

Al. Jana Pawła II 39a

31-864 Kraków

fax: +48 12 64 61 100

email: finance@comarch.com

phone: +48 12 64 61 000

Finland

Comarch

Technopolis Business Park

Innopoli II

Tekniikantie 14

02150 Espoo

email: nordic@comarch.com

phone: +358 50 50 191 50

France

Comarch Software SARL

19 Avenue LeCorbusier

59000 Lille

fax: +33 3 59 56 06 01

email: lille@comarch.com

phone: +33 6 59 56 06 84

Austria

Comarch Solutions GmbH

Nußdorfer Lände 23

A-1190 Wien

fax: +43 1 91066 66

email: finanzen@comarch.at

phone: +43 1 91066 00

Switzerland

Comarch Swiss AG

Bahnhofstrasse 21

9471 Buchs

fax: +41 81 755 55 01

email: finance@comarch.ch

phone: +41 81 755 55 00

Russia

Comarch OOO

4th Lesnoy Pereulok

office room: 438, 4103

125047 Moscow

email: finance@comarch.ru

phone: +7 495 225 85 85

Germany

Comarch AG

Lyoner Str. 20, 60528

Frankfurt/Main

fax: +49 69 478 69 27 00

email: info@comarch.de

phone: +49 69 962 37 62 00

Belgium

Comarch AG

Avenue Louise 65

B-1050 Brussels

fax: +32 2 535 77 00

email: benelux@comarch.com

phone: +32 2 535 78 69

Ukraine

LLC ComArch

18/7 Kutuzova Str.

01133 Kiev

fax:  +380 44 492 2843

email: finance@comarch.ru

phone:  +380 44 492 2842

www.comarch.pl

www.comarch.de

www.comarch.ru