Examining the Technology Options for Portfolio Oversight

Date: February 13, 2013

(This article first appeared in Bobsguide

The ever-increasing importance of portfolio oversight and more flexible reporting in the asset management field cannot be overstated, says David Adams in this Bobsguide feature looking at the regulatory and market drivers for increased oversight and the need for technology assistance.

Regulators and clients increasingly want asset managers to be able to promptly report on the status of the funds they are looking after. Demands for the net asset value (NAV) of a fund to be instantly made available or for stress test analysis reports to be run are ever more prevalent, so that effective oversight can be demonstrated. Some fund of fund (FOF) managers also want better oversight and reporting of their complex aggregated investment portfolios, including details of who is the company head and provide up-to-date fund performance data. It is not just traditional and hedge fund managers who are demanding better technological assistance, therefore, in meeting their oversight responsibilities. Everyone has to up their game in 2013 and explore the available technology solutions.

Despite regular comments to the contrary, fund managers do try to act with the highest standards of integrity – those that do not will soon go out of business. What has not always been so easy to achieve in the past, however, is accessing the portfolio information that would enable conflicts of interest, to be identified quickly and easily.

Read: New Insights for Asset Managers: How Technology Can Drive the Most Effective Middle Offices

Oversight Responsibilities

Regulatory oversight and the effective identification and management of risks of all types have become crucial in fund management, in part because of the use of the authorised corporate director (ACD) structure; and because many investment managers act as their own ACD. As Dallas McGillivray, group managing director at consultancy, FMConsult, puts it: “Because of the fund structure the regulator is on everybody’s back about who has the oversight role”.

It’s not just about what the regulator wants. Regulatory risk, investment risks and Value at Risk (VAR) calculations all need to be understood by all interested parties. Board members, depositories and trustees all need access to information about fund performance, particularly if a fund is using more sophisticated financial instruments, assets classes or investment strategies.

Broadly speaking, the largest investment players are more likely to act as their own ACD, with smaller companies outsourcing the function to independent providers. While the FSA’s main focus in recent times has been on issues related to smaller managers using independent ACDs, it is now starting to pay more attention to larger players acting as their own ACDs.

“Asset managers who do their own ACD work must challenge internal investment managers the same way an independent ACD would,” says Mark Adorian, non-executive director at portfolio analytics specialist StatPro. In the past it might sometimes have been difficult for a compliance or risk manager to challenge individuals who wielded a lot of power within a firm, but Adorian believes the higher profile accorded to risk issues today means this is now less likely to inhibit such challenges – provided the challenger has access to data they can use to make a case.

The oversight issue is of increasing importance to all funds, but is particularly pertinent if, for example, one fund owns another fund. “The problem here is that there is no up-to-date transparency,” says Adorian. “It doesn’t happen because fund managers say ‘that’s our intellectual property, people will know our positions and can front run us’, hindering timely reporting. But funds that own funds mean there’s a large level of fee extraction going on at the consumer’s expense. It also means that the ACD doesn’t know what the underlying securities are in the portfolio.”

Technology Options

StatPro’s online portfolio analysis offering, StatPro Revolution, can address the reporting and oversight burden, believes Adorian. It is one of a new breed of Software-as-a-Service (SaaS) cloud-delivered solutions that provide an all-in-one package, with connectivity available to the centralised ‘official book of records’ for reporting purposes and also NAV performance measure tools, risk modules for stress testing, and analytical VaR tools all in one suite. It can provide ACDs with an aggregated view of exposures to specific securities too.

StatPro Revolution can be accessed online by a range of users across the fund management company and beyond, for various purposes. It offers instant access to performance, risk, attribution and allocation analysis for any asset class. End users get an overview of the portfolio, details of individual positions, or aggregated views of exposures across families of funds. Portfolio analysis and ‘what if’ scenario results can be shared with investors online. StatPro Revolution’s user base includes companies in the asset services, asset management, wealth/investment management and pension fund sectors.

In common with other SaaS offerings, of course, there is an on-going usage fee and internal control has to be ceded to some extent, but StatPro Revolution and cloud-based solutions in general do mean that asset managers’ don’t face large upfront capital expenditure technology costs. In addition, the flexibility is there with a partner to upgrade systems more easily and quickly.

“End users typically find StatPro Revolution can fulfil many needs in the organisation,” claims Adorian. “It can be used by an asset manager making decisions in the portfolio. The product development team can use it to build products. The marketing and sales guys can use it to identify and present stories. The people in charge of remuneration can use it to assess portfolio managers’ performance. The chief executive officer (CEO), or chief information officer (CIO) can sit there and ask ‘what’s the group exposure to this security?’ because you can aggregate all the positions. The board can also have access to the portfolio every day if they want.

“StatPro Revolution enables up-to-date forensic oversight,” he continues. “You can see the total portfolio risk. You might have one very risky security, but the fact it’s paired up with another might actually mean you’ve got a well-balanced portfolio. StatPro Revolution breaks the information down into granular detail, so that the person in the oversight role would be able to see that.”

Due to the fact that the solution is cloud-based information can be shared easily and securely online. “The portfolio manager can use it and will know it’s the tool with which they are being overseen,” says Adorian. “That’s important, because at the moment people often rely on the manager to tell them what’s going on and the manager relies on whatever information source he prefers. If they’re using StatPro Revolution they know they’ve got an independent source of data.”


Identifying potential conflicts of interest is more straightforward if the correct technology is specified. Choosing the correct system also means you will have the most up-to-date, easily accessible information, which can be shared with all relevant partners and clients across the cloud. “If you have a concern about transactions pertaining to a particular security you can identify if there has been any investor detriment suffered at the touch of a button, for example, enabling further investigation,” says StatPro’s Adorian. “In comparison, commissioning the equivalent [detriment report] from auditing firms is very expensive and takes about two months – you want to be sure there is a problem if you greenlight this expense.”

FMConsult’s Dallas McGillivray has recommended StatPro Revolution to a number of his clients. “It gives you all the information that somebody would need from an oversight perspective,” he says.

This is as important to an end user’s current or prospective clients as it is to the regulator. McGillivray’s clients are usually trying to attract major institutional investors to invest in their funds. “The investors will do a lot of due diligence,” he points out. “If you’re using the data straight from the custodian and you can say ‘here’s a printout of last month’s VAR report’, then you’re demonstrating that you’ve got the appropriate controls and systems in place.”

StatPro claims that the way those controls and systems are provided, via ‘secure tenancies’ in the cloud, is unusually cost-efficient, with more servers added to provide extra processing power and capacity if needed. The solution costs $100 per month per portfolio, with unlimited access allowed for up to 100 users per portfolio. Its sharing capabilities are also unquestionably easier and cheaper to provide than anything comparable delivered via an in-house, on-premise based solution. New features are added every two months, as client and regulator requirements evolve.

The technical and financial pros and cons of cloud-based solutions versus in-house alternatives are still probably something end users should assess on a case-by-case basis, but concerns about the security of cloud-based solutions seem to be lessening over time as the solution acquires an ever wider user base, claims Adorian. “[The SaaS security question] gets asked less and less, as more and more people trust in the technology,” he says. And while no IT system can ever be completely secure, in most cases human factors, not the technology itself, are at least as likely to be the source of security problems.

All in all, it would seem there is some substance to StatPro’s claim that portfolio analysis and oversight technology solutions can reduce operational costs and risks significantly for asset managers. That could save end users, ACDs and the regulator – plus maybe investors and lawyers – an awful lot of time and trouble, although I suspect the later might miss the fees.

Learn more at our webinar ‘Portfolio oversight from StatPro’ on Wednesday 17 April 2013.

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