Performance under pressure

Since the financial crisis, performance teams are under more pressure than ever. Ad hoc report requests with very short deadlines from fund managers – to appease fragile investors – have become the norm. The performance systems of the future will be able to deal with these requests through a different, ‘self-service’ business model whereby once the report has been deployed, the business consumer can replicate it himself whenever he needs it. Unless the underlying systems change, performance staff will be ‘drowned’ in these repetitive ad hoc requests and not be in a position to deliver real business value.

The business users of performance data are diverse. It is generally accepted that performance data is now critical also to marketing, client relationship and a host of other staff so the information needs to be presented in a variety of formats. Visualisation has become key.

Performance is therefore now an integral part of the asset management process. It is no longer a department, or a back office or middle office function. It needs to be brought up out of its silo and integrated with the rest of the business and its valuable information shared.

However, for this to happen, the performance industry must change its approach. The conclusion of the month-end syndrome, shifting power to the desktop and performance delivery in real-time are all factors that will shape this transition.

In today’s large-scale asset management operation, firms need the ability to operate efficient and transparent performance measurement processes across the globe. This involves all instrument classes and with highly effective human computer interfaces, in real-time. Performance teams need a technology that allows this, rather than the traditional ‘do your performance measurement and attribution calculation only at certain times of the day’ model. Without this functionality, a series of problems arise that seriously hamper the effectiveness of performance teams – and generate risks to the core business.

Over the last five years, the acceptance and use of performance standards has led to a homogenisation of portfolio performance and attribution systems across the globe. This standardisation has led to increasing commonality of operational best practice in the business areas where performance and attribution information is manufactured. Performance calculations have been standardised for many years; equity attribution has a number or well recognised industry favourites. This trend can be witnessed over both geographies and business areas. Even the performance business skill set has been standardised.

Once this happens, it becomes very easy for any vendor or service provider to simply build a performance and attribution capability into their product. We have witnessed vendors, who historically have not been in the performance attribution space, move towards it. Whether it is front office, compliance vendors or data providers, most of them have introduced some form of performance and attribution system.

In the past, different systems were required in different business areas: for example, by asset classes. Often these systems also varied across different geographies or offices. Today this is no longer necessary. In many ways performance and attribution are fast becoming commodities. Investment firms are beginning to embrace the many benefits this brings. By utilising one system and a common operational model, asset managers will improve their business agility and performance whilst simultaneously reducing their cost base.

Firms have had significant resource pools working in isolation – largely due to their historical systems infrastructure and some local isolated practices. GIPS and a greater understanding of performance and attribution as business processes rather than isolated functions, have swept these local differences away.

The performance system of the future will have a user experience that would one would compare to that of Google, iStore and online banking. The user interface will be so simple that anyone can use it. Simplifying the analytics underneath the user interface so that asset managers at the lower end of the market (for example hedge funds or asset managers with $500m AUM) can also use the system would also be a step forward for the industry.

There is also a need for ‘strategy level’ analysis. Asset managers are moving towards increasingly complex investment strategies, for example grouping positions together. Tomorrow’s performance platform will be able to handle these complex strategies as a matter of routine.

Fundamentally, performance vendors need to recognise that each user in an organisation has different analytical needs. Delivering the ability for the user to dynamically build their dashboards in a very user friendly way (using drag and drop functionality) will become commonplace.

There is a need to change the perception of software vendors in this space, striving to deliver updates and new capabilities in the same way as Apple and Microsoft – avoiding costly, high risk upgrade projects. More importantly this will enhance the profile of the performance function within the asset manager. As they are given the tools to deliver more powerful analytics to their business leaders, performance teams will expand the traditional definition of performance measurement.

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