Forty four per cent of buy-side asset managers are relying on mostly or completely manual processes for managing complex swaps across the investment lifecycle, according to a new survey by SimCorp.
And more than 50 per cent claim they still require some amount of manual intervention in a semi-automated process. In addition, more than half of asset managers are unable to obtain a consolidated view of their derivatives exposures alongside all other asset classes. The survey polled 57 individuals from 32 different buy-side firms in North America.
Swaps require ‘look-through,’ an interpretation tool that allows firms to see all of the underlying components of the asset itself. The ability to decompose each swap is critical in order to effectively monitor a firm’s overall strategy. Without one consolidated view of swaps positions in relation to all other asset classes, a firm cannot holistically track what it owns, its worth and the exposure across its entire book of business. That, combined with the lack of automation, can result in poor investment -making and be materially detrimental for investors.
“Despite long track records of derivatives usage within investment portfolios, patchworks of manual processes and desktop-based spreadsheet analytics still persist,” says Geoff Cole, director at Sapient Global Markets. “This inefficiency manifests itself as operational risk in the form of inconsistent or delayed views of exposure, longer month-end cycle times for NAV and performance reporting to clients, and delays in new product launches.”
“The persistence of widespread operational inefficiency in this area of the swaps market is a red flag pointing to the potential for costly errors and substantial delays in time-to-market,” says Marc Mallett (pictured), Vice President of Product & Managed Services at SimCorp North America. “Adopting a global platform with the ability to deal with complex swaps along with other financial instruments across multiple jurisdictions combats and often eliminates these issues by providing a complete picture of what you own, what it’s worth and your exposure.”
