In a highly competitive capital raising environment, asset managers – irrespective of whether they are traditional long-only, hedge funds, or private capital – must demonstrate to potential clients that their investment and operational processes are robust. A failure to do so could result in prospective customers refusing to allocate, while existing investors might even withdraw capital altogether. In response, more fund managers are increasingly embracing IBOR (Investment book of record) solutions.
The operational challenges facing managers are well-documented. The funds industry as a whole has become more complicated, something that has been fueled by the emergence of hybrid managers together with complex strategies and asset classes. At the same time, institutional investors want more information from managers, and are often demanding it on a near real time basis. On the regulatory-side, managers are dealing with a tsunami of new rules on both sides of the Atlantic, including the US Dodd-Frank Act and the EU’s AIFMD (Alternative Investment Fund Managers Directive) and MiFID II (Markets in Financial Instruments Directive II), all of which are eroding managers’ already depleted resources. Compounding matters further is that managers are also having to navigate and make sense of increasing amounts of data, much of it being sourced in an unstructured format from different counter-parties. This exposes managers to serious risks and increases their chances of making mistakes. Moreover, it often means that decision-making is sometimes suboptimal.
These issues are prompting asset managers to take IBOR more seriously. So, what exactly is IBOR? There are many competing interpretations of what IBOR is. The most commonly accepted definition of IBOR is that it is the centralization of data (covering daily positions; transactions; cash holdings) from across the front, middle and back office – encompassing all strategies – within an asset manager. By having a golden, centralized copy of all of this information, asset managers can better monitor performance and risk, together with fulfilling their investor reporting obligations. In addition, IBOR can give managers a better look-thru into their operational processes across the middle and back office. Possession of organized data may even support managers when scaling up their businesses. Most significantly, centralized data ultimately helps asset managers augment their decision making, enabling them to provide a better service for clients.
There are several ways by which managers can develop IBOR solutions. The first is to leverage competent outsourced providers offering IBOR solutions. Alternatively, managers may opt to bolster their existing order management systems (OMS) or accounting book of record (ABOR) systems to include IBOR capabilities. Nonetheless, IBOR integration is a process which does require commitment and investment if it is to be done successfully.