By Tyler Kim, CIO, Maples Fund Services - Institutional investors could be easily overwhelmed by the volume of data that originates out of their managed accounts programs. To avoid this, they require information systems that aggregate position data across multiple managers, consolidate information on a ubiquitous dashboard, and produce meaningful analytical reports. Data accessibility and robust reporting capabilities are key to extracting the informational benefits intended from managed accounts.
The type of reporting done for managed accounts is setting a new standard for portfolio information synthesis. Applying the “managed accounts approach” to reporting across all assets is an emerging trend we’re seeing among institutional investors, and something that we believe will continue as institutional investors begin to implement increasingly sophisticated investment strategies requiring a higher level of oversight.
Through our experience in administering managed accounts programs, we observe that institutional investors are consistently interested in a few select details distilled from the massive data set that is accumulated within our portfolio accounting system. As their administrator, we have been asked to provide our clients with tailored solutions that cut through the clutter, and provide investors with insight both across and within their managed accounts program that allows them to demonstrate strong monitoring and control.
Following are five examples of the types of information that investors want:
- Asset allocation. Institutional investors want to see portfolio values and exposures (e.g. notional value of derivatives positions) by manager, strategy, and instrument-type.
- Performance. Investors want to know how they did and want to view performance attribution across different dimensions. Manager performance correlation is also of interest as allocators attempt to achieve optimal diversification mixes.
- Risk (volatility). Understanding risk-adjusted rates of return has become increasingly important. Additionally, ‘what if’ and sensitivity analysis are needed to demonstrate what would happen if portfolio exposures were different, or portfolio shocks were experienced.
- Liquidity. Liquidity management at both “tactical” (cash positions, cash projections) and “strategic” levels (exposures to illiquid assets, portfolio liquidity profile based on holdings) is required.
- Qualitative assessment. Institutional investors seek a third-party analysis that provides a condensed summary of how the portfolio is doing along with key observations. For example, it would be important to highlight anomalies in the portfolio, such as a manager’s style-drift or spikes in volatility. This type of qualitative assessment is something that requires both robust information systems and professional expertise.
While these five needs are commonly and consistently observed, differences in each investor’s nomenclature, definitions and perspectives can complicate the delivery of this information. It is in accommodating these differences that “one size fits all” solutions – such as package-based systems and standard report packages from custodian banks – fall short. Knowledge of industry leading practices coupled with client-specific feedback are critical in the design and execution of truly effective reporting solutions. Consequently, a high-touch, consultative approach to bespoke solution development will result in the most usable and valuable results.
The needs addressed by information solutions developed for managed accounts are not specific to them; the same technology and expertise can provide institutional investors with deeper insight across all of their assets. Managed accounts have shown the industry “what good looks like.” Meeting the higher standards for portfolio transparency and insight set by managed accounts will enable institutional investors to serve their beneficiaries even better.
Tyler Kim is the CIO of Maples Fund Services.