IBOR [investment book of record] – namely the centralization by asset managers of data from across their front, middle and back-office, has been gathering momentum for almost a decade now. By having a singular data source, asset managers will have better oversight of their performance and risk. It can also support managers with their operational processes, such as investor and regulatory reporting. When overheads are rising, IBOR is a tool that can help fund managers achieve economies of scale. For the unconverted, PBI outlines why now is the time for asset managers to implement IBOR.
1] Costs are only going to go up.
Asset management overheads are rising, owing to increased institutional investor demands and new global regulations. With a number of firms struggling to generate performance in the low rate environment, the need to obtain operational efficiencies will be critical. This can be enabled through IBOR adoption. An effective, organized data solution can help managers reduce costs by minimizing duplication risk and errors, both of which can eat away margins.
2] Transparency is a need to have.
Institutional investors want more timely information from their fund managers, including greater look-through into portfolio holdings. Similarly, regulators are also demanding more granular data from asset managers. To ensure reporting is accurate, timely, and easy to accomplish, managers are best served by having all of their material data-sets pooled in one location as opposed to them sitting in different business siloes or across multiple counterparties.
3] The world is more complex.
As asset managers from across the spectrum attempt to diversify their return streams, many are launching new strategies. The hybridization of asset management means investment firms oversee systems that may be new or highly complex. At the same time, managers need to make sense of vast volumes of data, a lot of it being sourced in an unstructured format from multiple counterparties. Holding data across multiple business suites and strategies in a single location will be critical if managers successfully navigate such complexities.
4] Competition is rising.
Alternative and traditional asset managers are under intense fee pressure from investors. This is partly a result of the industry's competition from low-cost passive providers such as ETFs, index trackers, and smart beta products. Longer-term, some believe big technology companies may even muscle into asset management – or at least fund distribution – in what could result in a massive shake-up of the industry. Through IBOR, asset managers can reduce their operating costs while enhancing their overall service quality to end investors. This will help active managers become more competitive moving forward.
Make it happen
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 bolster their existing order management systems (OMS) or accounting book of record (ABOR) systems to include IBOR capabilities. Nonetheless, IBOR integration is a process that does require commitment and investment if it is to be done well. However, the rewards of getting IBOR right are worth the effort.