Back to the future for IBOR

The complexity of the investment management industry is growing and the data that needs to be analysed is richer than ever before. This is a consequence of the thinning geographical boundaries within portfolios and the search for alpha that drives managers to incorporate different and more esoteric asset classes within a single portfolio.

The impact of this changing environment has been a resurgence in the industry's use of the Investment Book of Record (IBOR), a central and comprehensive source that tells the complete story of a firm's portfolio activity. An IBOR provides a timely view of a firm's exposures, portfolio positions and cash. The fullness and clarity of the picture it paints means that it provides the intelligence and insights on which many portfolio decisions are made.

Although popularity and use of the IBOR is growing, it is now much more difficult to develop an effective one. This is not only due to the increasing complexity of the investing industry, but also the existing technological limitations.

Legacy systems – in essence old technology that is no longer fit for its original purpose – and the use of multiple platforms across the front, middle and back offices that more often than not do not 'talk' to one another, are huge issues for many buy side firms.

Technology shortfalls often mean that the front office can't access timely and accurate information about investment positions, which makes well-informed decisions difficult. Ultimately, this can hold a firm back from entering new markets, processing investments and accessing up-to-the-minute data.

A go-to source of truth

So what makes the IBOR the go-to source of truth in more and more investment firms?  Often, legacy technology results in a separation between the Trading Book of Record and the Accounting Book of Record. This leads to investment decisions based on an incomplete, out of sync, and hence incorrect view of positions and investable cash. The IBOR solves these problems by capturing and centralising, intraday, all events across all asset classes and systems to maintain a position record that is always up-to-date and correct. This position – effectively a 'golden copy' – is available to front office users as a far better foundation for investment decisions and risk assessments.

Why now?

While the IBOR concept is not a new one, there are a few overarching factors that are behind its growing popularity. For example, the reality that the operational breaks that result in one part of a firm, typically the back office, which operates on an end-of-day process, do not flow through to other parts of the firm, in most cases the front office, which works on an intraday and real-time basis, means there is no consistency across different parts of the investment chain. This is a key factor behind the IBOR adoption in the front office since portfolio managers need to react to volatility in multiple asset classes and investors require insight over intra-day positions.

The fast moving regulatory environment is also at play here. Regulatory requirements around the use of collateral, and the resulting cash and securities movements, are an example of the kind of change that has altered the information needs in the front office. Furthermore, regulations such as the European Market Infrastructure Regulation (EMIR) have introduced intensive and frequent reporting requirements, increasing the relevance and necessity of an IBOR. They have also emphasised the importance of data management for efficient compliance. 

Firms are also starting to realise that the ubiquity of rich data is not simply something to manage – it actually creates a significant opportunity, where innovative products can be developed, more complex investment strategies supported and new markets opened. Firms unable to capitalise on this trend lose their ability to effectively compete and generate alpha. 

Of course, an IBOR can only be as good as the quality of the data going in. While the vast majority of investment managers believe data quality within their firm's daily operations is extremely important, many are still sceptical their firm can deliver consistent data across their entire system. What is clear to them is in this increasingly complex and competitive investment world, they must take a different approach to how they manage multiple sources of data. Portfolio managers need to know exactly what is and what isn’t included in their position view. Access to information that is accurate, complete and timely is vital to decision making across the firm. Not only is this in the best interest of their clients but also the long-term success of their investment strategy and objectives.

Gernot Schmidt, 

Senior Launch Manager

SimCorp Product Division