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Investment Book of Record: Five things you didn’t know
Cue the Investment Book of Record (IBOR). While it might not be an acronym you come across every day, it is set to become part of the day-to-day for the asset manager as the centre of the investment universe
Nick Quin 7 Aug 2015
 
   

Asset management firms are running on the ‘technology treadmill’, as they are faced with the challenge of navigating through a wave of disruption across the industry.

 

For example, asset inflows and cross-flows are moving away from traditional fixed-income and equity-based products to alternative asset classes. From an investment strategy perspective, there is also a shift in preference from actively managed to passive products, including exchange-traded funds (ETFs). Trends like these are setting the sector up for an exciting era of change.

 
Subsequently, an investment management firm’s front-office capabilities are paramount, as business strategies are reviewed to retain existing clients and attract new ones within a new playing field. With portfolio managers and traders relying on correct and timely position data in order to have the ability to innovate, comply with regulation and make the right investment decisions, the foundation on which these are possible have never been more important.
 
The requirement for a holistic, complete view of the risks associated with every action – or inaction – is crucial. Imagine the power of the asset manager when equipped with a real-time, single source of truth from the front to the back office about current, projected and historical positions. This would reap rewards in all directions – notably efficiencies in time management and alleviating siloes across the board.
 
Cue the Investment Book of Record (IBOR). While it might not be an acronym you come across every day, it is set to become part of the day-to-day for the asset manager as the centre of the investment universe.
 
An IBOR establishes a consolidated, enterprise-wide, multi-asset class data foundation, as opposed to a silo-based view on individual asset classes. Without this, could it be possible to understand all the risks and counterparty exposures relevant to the firm?
 
Here are five main things you did not know about the power of an IBOR:
 
1. It tracks the full position lifecycle
 
A number of source systems feed into an IBOR every time a new event is captured or there is a change in status. Based on the positions and event schedules per security or contract, the platform can project the future security and cash positions. The event schedules include all kinds of events, such as bond cash flows, maturity of a swap contracts, forecast dividend payouts or expected restitutions.
 
2. It must fulfill a number of key requirements in order for it to achieve optimum performance
 
In order to provide a complete and up-to-date, front-office based view on current positions and investable cash, a company must ensure the IBOR must fulfil the following requirements:
 
      i.        Full instrument coverage
     ii.        Position management
    iii.        Event management and drill-down
    iv.        Cash forecasting
     v.        Security forecasting
    vi.        Reconciliation and exception management
   vii.        Integration to source systems
  viii.        Market valuation, accruals and analytics
    ix.        Distribution to receiving systems
     x.        Online view of IBOR information
 
3. There are different methods of implementing an IBOR.
 
Where outsourced suppliers are used, one solution is for asset managers to insist their suppliers offer better position management. In this case however, asset managers would still be faced with the position of consolidation and no independent view on positions.
 
Some other approaches include considering the IBOR as part of the front office by extending current OMS capabilities, or to build out the Accounting Book of Record (ABOR) to include IBOR capabilities. In regards to the latter, the accounting system is required to incorporate functionality to simulate trades and include pending orders as well as timely handling of the transaction cycle for intra-day trades.
 
4. It equips investment management firms with the ability to innovate and scale.
 
An IBOR offers a real business advantage for firms as it strengthens and streamlines the operational infrastructure, including all events no matter their origin. Companies also benefit from having an IBOR when it comes to operational flexibility, especially now that companies want to be more agile in preparation to adapt to future changes in the industry. With an IBOR, individual outsourced business functions can be brought back in-house, retained functions can be outsourced, or migration from one outsourced service supplier to another is facilitated. It differentiates a company’s product and service offerings for maximum competitive advantage.
 
5. It is more than just a data management system.
 
Some regard the IBOR as similar to a traditional data warehouse, but it is much more than that. It contains advanced business logic for event-handling across instrument types including complex products (e.g. OTC and ETD, structured products or alternative investments such as private equity or property), position management and forecast capabilities as well as valuations and key ratios such as exposures.
 
As investment management firms move to take full advantage of emerging growth opportunities, they find themselves exposed to weaknesses in their current operating models. Not only does an IBOR remedy these deficiencies and help lead to a source of sustainable competitive advantage, but it can also future-proof a company’s investment operations for years to come.
 
 
Nick Quin is managing director for SimCorp Asia Pacific
 

 

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