The Investment Book of Record can be considered the Holy Grail of investment operations, providing managers with a near real-time view of a firm’s positions. Without an IBOR system, the front office must either work off partial and out of date data, or produce IBOR figures manually, according to Todd Healy, vice president and head of investment operations at BMO Asset Management.
“That can be time-consuming, lead to portfolios not being ready to trade when markets open and an inefficient use of highly skilled and expensive alpha producers valuable time,” Healy told Markets Media. “IBOR allows our portfolio managers and traders to do what they do best and not worry about reconciliation and other items.”
As head of investment operations, Healy oversees areas such as portfolio accounting, trade settlement, performance measurement, data governance, project management and business application support.
“The business issues around investment positions and investable cash have to do with two main points: timing and quality,” said Healy. “Markets move fast and portfolio managers and traders need to react quickly. The only way they can do that is if they have confidence in the data they are working from.”
Todd Healy, BMO Asset Management
The ability to perform intra-day calculations from the impact of position driving events such as FX rate, collateral, securities lending, fees and corporate actions was rated highly important by 83% of executives of North American-based capital market firms who were polled by SimCorp, a provider of investment management systems. Yet only 23% of respondents are able to perform intraday calculations.
"The challenges of doing without an IBOR are real, and this view has gained marked traction across the industry as the many benefits of introducing IBOR have become clearer,” Marc Schröter, senior vice president of strategic research at SimCorp, told Markets Media. “For the front office, the benefits of an IBOR reside in minimizing the risk of wrong investment decision making because of poor quality, incomplete or imprecise position data, as well as of having an inaccurate and incomplete picture of risk exposures.”
For the back-office, the benefits of having an IBOR are related to having an independent view of positions. "The IBOR’s existence means that, should the business need arise and depending upon operating model employed, 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," said Schröter. "The IBOR provides the basis for reconciliation against custodians or accounting systems.
In addition to IBOR’s ability to minimize risk for the front and back-office, IBOR assists investment managers in complying with an onslaught of regulatory reforms. “Legislation such as Dodd-Frank, EMIR and Solvency II all ultimately demand firms to have an accurate view of exposures across counterparties, collateral and the underlying derivatives,” said Schröter. “The complexity involved in exposure calculation and mandated regulatory reporting will make compliance an uphill battle without a solid investment book of record in place.”
The impact of consolidating positions and cash is ultimately down to “temporality of the data,” said Mark Israel, investment management practice lead at Sapient Global Markets. “If you cannot combine cash and positions until half way through the day especially in a global environment with changing margin requirements, the ‘value’ of that information has been eroded,” he said.
The use of transactional and position data allows quick and easy compliance with Emir, MiFID2 and other regulations that require rapid access to this type of data. Additionally, IBOR serves as the forward-looking view of a portfolio, in contrast to Accounting Book of Record (ABOR), which provides a historical view, according to Israel. “Having a view that helps understand various risk factors based on future events helps investment professionals arrive at better investment decisions,” he said.
Healy added, “IBOR also allows us to build a consistent and additive operations process around all that we do. Those two items also translate to risk mitigations.”
