One Direction

THE BENEFITS OF COMBINED PERFORMANCE AND RISK ANALYTICS FOR ASSET MANAGERS

Combining risk and performance attribution analytics in a single view creates a much better

picture for the front office.

Why?

With a single view of the data, asset managers can get an instant explanation of:

How the money from previous investments was made.

How that compared

with what was expected.

The level of risk if similar

action is taken in the future.

Large asset managers, in particular, need a big picture that is clear of

irrelevance and obsolete calculation. They need a single data set that

enables them to analyze past and future investments, over every

asset class.

THE NEED

But combining performance and risk is still a real challenge

for many middle offices.

THE ISSUE

Three reasons:

Too many legacy systems performing only one element of

analysis

Data volumes have gone

through the roof

Regulation, regulation and

even more regulation

WHY?

Nevertheless, having a single and instant view of a mass of data is increasingly important.

It wasn’t always like this and recent market and industry trends have created real strain for middle office teams working with legacy

systems and processes.

BUT THE CHANGE IS HERE TO STAY...

“We believe the second half of the decade will transform the middle office in a way not

seen since its inception. This evolution will be driven by the convergence of some front

and middle office functions—namely the generation of risk and attribution data.”

CITISOFT, 2016 OUTLOOK REPORT

What does this mean?

The demands on the middle office have now exploded. Because

complex investment strategies continue to evolve as they search for returns, the demand for more timely data means the operational ability

of many firms is under stress.

Accuracy and regulatory requirements have both increased.

Shorter settlement cycles are becoming the norm along with a greater need for transparency.

In short, asset managers are staring down the barrels of:

More data

From more sources

With less time to analyze it

If that’s not enough, operational improvement and efficiency are also top agenda items in

many of the large assessment management firms today.

What should happen next is for middle office and accounting (IBOR) to provide core risk and performance attribution data in a similar fashion

to the way they currently supply cash and position data.

NEXT STEPS

Middle office risk and performance attribution capabilities only scratch

the surface of front office needs, with very basic models.

BUT THERE’S A CATCH

Many front office systems stem from an organic development which consists of PhD’s and quants working

with investment professionals. Meanwhile, systems used by the

middle offices are primarily focused on trade settlement and reporting.

BUT THERE’S A CATCH

The problem is not necessarily an information gap but, rather, a synthesis gap.

Establishing the analytics to identify the devil in the detail requires leadership to identify which information is critical for reports or dashboards that can be easily monitored.

SETTING UP THE SYSTEM

The more asset managers can align their middle and front offices, the more they will be able to achieve a single data source. Once this is

done, the right analytics process will give them the bigger picture…

… and a more robust definition of past, present and future direction.

• Data security and quality are now top priorities for asset managers.

• The ability to generate reports around combined performance and risk analytics is now a fundamental capability.

• But for many middle offices, combining performance and risk analytics is still a real challenge.

TAKEAWAYS

LOOKING FOR IMPROVEMENT IN

YOUR MIDDLE OFFICE?

Performance and Risk Analytics 2016-2020: why large asset management firms need a combined approach

Review how large asset management firms are shaping up for the future.

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