Fragmented position-keeping across the trade lifecycle presents significant risks to buy-side firms. As the SimCorp Journal paper, “The Investment Book of Record: One Version of Truth from Front- to Back-Office,” explains, “When investment processes and asset classes are supported by multiple systems across the front- to back-office, it is impossible to gain an accurate view on true portfolio positions. The risk of poor decision-making is inevitably higher when portfolio managers are working off bad data.”
Asset managers that have implemented an Investment Book of Record, or IBOR, have empowered themselves with a repository that combines front-office start-of-day positions with back-office end-of-day positions; a single source of truth from front- to back-office. An IBOR centralizes position-keeping across the entire trade lifecycle and provides investment managers with a comprehensive view of positions and exposures.
Realizing the uphill battle that firms face when it comes to compliance, an IBOR also delivers value by assisting investment managers in complying with the onslaught of regulatory reforms. Legislations such as a Dodd-Frank, EMIR and Solvency II are united by a common denominator – the need for an accurate view of exposures across counterparties, collateral and the underlying derivatives.
An IBOR centralizes position-keeping and portfolio calculations across all assets and instrument types including complex products (e.g. OTC and ETD, structured products or alternative investments such as private equity or properties). This centralization ensures improved data quality, timeliness and accessibility, and ultimately provides firm’s complete and accurate data for consideration as part of the investment decision-making process
Overall, the benefits of establishing an IBOR include:
- Minimizing the risk of wrong investment decisions based on incorrect data
- Providing total overview of risk exposures
- Empowering more efficient use of assets due to accurate and complete online view on positions
- Delivering an independent view on positions to create flexibility towards service providers
- Reducing time spent by operations staff correcting inaccurate position data in current setups
- Enabling reconciliation against custodians or accounting systems
By implementing an IBOR, a buy-side firm can fully leverage data management dollars to drive better investment decisions by capturing a holistic view across the entire enterprise. As discussed, an IBOR minimizes risk for the front- and back-office and assists investment managers in complying with demanding regulatory requirements. While operating an IBOR on a daily basis does require operational resources, the benefits listed above can also provide tangible results. An independent study suggests that the operational efficiency of deploying an IBOR can contribute to realized investment performance in the range of 50–200 basis points, proving that accurate and efficient data management not only mitigates risk, but can ultimately increase alpha.