Buy Side Adopts Hybrid Delivery of Portfolio Analytics


Managing portfolio analytics used to be a black-or-white decision for asset managers: They could develop the necessary tools internally or outsource the entire process to a third party.

Over the past few years, however, more and more gray has crept into the decision-making process as firms looked to outsource only a portion of their portfolio analytics by adopting a hybrid model, Sean Murray, director of commercial strategy – performance at FactSet, told Markets Media.

Sean Murray, FactSet

“If you asked me this five years ago, I would have said that this would not happen,” he said. “It would have been a binary decision to outsource and outsource entirely, or not at all. When you think about it now, however, it doesn’t surprise me. The tools available to buy-side clients have really advanced over the past few years, to the point where clients’ priorities and decision trees have changed.”

Murray attributed the greater adoption of a hybrid model to how mature the provisioning of portfolio analytics has become.

“Solutions are designed to offload a lot of the basic stuff from the middle office, while keeping the middle office intact to focus on higher-value work, with more advanced tools,” he explained.

Firms that regularly run security-level performance, Brinson-Fachler attributions, and fixed-income attributions are sending out these calculations and receiving their results so that they can free up their middle offices to help portfolio managers understand the performance of their portfolios, noted Murray.

As the technology and its delivery has also matured, the demands placed on portfolio managers by their clients also have increased in volume and complexity.

Investors have grown in sophistication and know the names of the algorithms that their asset managers use, according to Murray.

As a result, the buy-side middle office is relying increasingly on transaction-based data to feed its performance and attribution calculations rather than the indicative data, which it had used historically.

“If a portfolio manager is having a conversation with a client and is saying that last month they had a 4% return, and what came out of the middle office was 4.2% or 3.8%, all of a sudden that discrepancy is no longer okay,” he added. “Because you can track and measure performance in a more granular fashion today, you must do so—for clients, for compliance officers, for regulators, for the front- and middle office.”

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