Why Invest in Portfolio Management Systems?

By Mats Berggren

For any investment manager planning on a long-term future, there is no substitute for solid, well-executed investment ideas. Making money is, after all, the fundamental component of success. Yet in today’s business environment, investment managers must also have a functionally rich and robust technology platform from which to operate. What is more, as the speed, volume, complexity and globalisation of trading becomes evermore pronounced, that emphasis on IT capabilities will only increase.

The portfolio management system (PMS) is a case in point, since such mission-critical platforms are at the heart of an investment manager’s IT operations. Depending on the software vendor, a best-of-breed PMS will offer a range of capabilities and components, including multicurrency, cross-asset investment accounting support for multiple accounting regimes, performance measurement and attribution, customisable management and client reporting, pre and post-trade compliance monitoring, and integrated risk management and client relationship management tools. And all functioning in a real-time processing environment.

So why is such technology necessary? The advantages fall into three broad categories: first, an efficient operating environment translates into fewer errors and failures, and lower costs; second, improved compliance with the firm’s regulatory responsibilities; and third, better client service.

Let’s take the first: operational efficiency. The essential element here is automation. Seamless integration of the PMS to the firm’s other upstream and downstream systems allows data to flow from end-to-end of the transaction chain in a straight-through manner, increasing the speed of processing and eliminating manual intervention.

The result is improved data accuracy, fewer trade failures and a lower staff-to-transaction volume ratio. And that translates into lower costs, plus a more scalable infrastructure that allows for business growth without increasing headcount at the same rate. In addition, a best-of-breed PMS will be more stable even when dealing with complex transactions and high volumes, resulting in more trading uptime.

Likewise, such systems boast comprehensive security coverage, and may have an open accounting structure so new instruments can be added with ease. A manager will then have the flexibility to expand into new markets quickly, rather than relying on error-prone manual workarounds or to wait for support functionality to be developed and tacked on to a proprietary system.

The automated environment a PMS creates also contributes to point two . A firm’s regulatory responsibilities are non-negotiable. And as the amount of regulatory oversight and demands for transparency continue to intensify, it is becoming more difficult than ever for investment managers to ensure there are no transgressions.

A cutting-edge PMS though will be a major aid to a firm’s compliance effort. For example, configurable pre and post-trade compliance capabilities allow it to trade different instruments in different markets with confidence, and know that as the regulatory requirements evolve it can meet any changes with a minimum of disruption. Meanwhile, it will provide the manager with more accurate investment data and a verifiable audit trail for the transactions that have flowed through the system.

Ultimately though, the long-term health of an investment firm rests with its customers. To this end, the onus must be on consistently exceeding clients’ investment return and service expectations, and in striving to improve them on a continual basis.

Here again the portfolio management system will be a valuable tool. For example, through the real-time capture and reporting of trade and portfolio data it can feed the firm’s portfolio managers, and their superiors, with more accurate and timely information that can be used to enhance investment performance and safeguard against expensive errors.

Similarly, the ready availability of complete and accurate portfolio account information, allied to an automated reporting engine able to produce customisable, value-laden customer reports, will allow a firm to provide its clients with a more responsive and proactive service, and thus give them a competitive edge over their peers. And that can only help to improve client acquisition and retention rates.

In short, can you afford not to invest in a proven portfolio management system?

Mats Berggren is Sales and Client Relations Director at Advent Software EMEA.