The Power of an Investment Book of Record

  • February 2, 2015
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The numerous data that any portfolio manager in any investment management organization receives presupposes us to think that it has accurate and complete positional information that investment decisions can be used. This is an incorrect presumption.

There was a time when things were simpler. Each working day starts with portfolio managers having a set of records that has been updated overnight by its accounting systems. As the day progresses, records are adjusted to show trading activities as they come in, which led to the creation of a trading book of record (TBOR).

Market globalization has changed all this. It has introduced larger scales of investable strategies and securities that have given importance to understand cross-asset views. The portfolio manager now has to contend with open trades, resets, cash, collateral needs, simulations and benchmarks, which the TBOR could not cope up with.

This has given rise to creating an investment book of record (IBOR) which could provide an accurate, complete and instant view for investment decision-making. However, an investment book of record will only work if the operating models of asset managers can support all the functions of business strategies which make use of front, middle, and back-office work.

This may be easier said than done as operating models of every business are different from each other, and a more complex system that operates on hundreds of different processes and systems may face problems of establishing a well-functioned IBOR.

The best way to establish an IBOR is to make it a central element of the whole business operation. It should not be viewed simply as a data repository as it would defeat its great purpose, which could do more than just offer improved business data delivery and quality. IBOR has to be made to function as a processing system that will effectively show every event of any aspect of the business which should be finely attuned to all changes in the investment process as they happen.

IBOR should not reflect any discrepancies between the varied business views of positions that it would give to front-office, middle, and back-office professionals. A single, consistent, and accurate view should be the basis of the organization’s investment activities through the IBOR.

Integrating IBOR into the investment process will be effective since it will show a single position, which is the accurate version of the truth. Not having this would mean inaccurate and incomplete information where investment decisions will be made – which would lead to uncontrolled and unexpected outcomes that will not meet expectations of stakeholders, regulators, and investors.

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