Portfolio construction has historically sat upstream of the trading desk, in the portfolio manager’s own environment. And more often than the industry likes to admit, in a spreadsheet.
FlexTrade, the multi-asset execution and order management systems vendor, has integrated the construction, optimisation and risk analytics of Portx, the London-based portfolio construction and analytics provider, into its buy-side OEMS, FlexONE. The integration, announced last week, moves a piece of that upstream work into the execution layer, and it does so at a point where the OEMS has already absorbed a good deal of what used to sit around it.FlexONE already carried front-office risk analytics before this integration: real-time risk recalculation, intraday factor exposure monitoring, factor P&L decomposition. What it did not carry however was an optimiser.
“We build a raft of capabilities in-house via our client-driven development initiatives and our internal FlexONE-specific R&D function; however, on this occasion, the deep domain expertise of the Portx team in this space meant that partnering, rather than building these capabilities in-house, made the most sense,” Raghav Kedia, VP – Product Implementation, OEMS at FlexTrade tells TradingTech Insight.
Enrico Grande, CEO & Founder of Portx, draws the line between his firm’s tooling and the analytics FlexONE already had at the point where analysis turns into action. “Portx’s differentiation lies in its portfolio optimisation technology,” he says. “Of course, we offer a full set of analytics, but that’s just the starting point. Portx delivers the technology that not only lets you view the full picture but also, uniquely, change it through implementable workflows and active hedging strategies.”
Two teams, two toolsets
Grande’s account of what the integration addresses is less about analytics coverage than about a structural split inside the fund.
“Risk management has become an integral part of how funds are run. There is often asymmetry in the views of the risk team versus the portfolio team,” he says. “They often come from different directions – the PMs are working from Excel, analytics, and exposures to form their convictions and portfolio weights. The risk team analyses from a different perspective, so the dialogue starts far apart. PMs and Risk teams need tech they can use uniformly. Doing so lets the PM express their conviction natively, with input from risk so that they can present it in a more risk-aware way. This approach brings the two teams closer together and makes the relationship more productive.”
He continues: “From a PM’s standpoint, they need to ensure that their alpha and conviction are effectively represented in their portfolio – not diluted or corrupted by uncontrolled factors that inevitably arise without oversight. PMs need to control exposures without wasting time. They care about their conviction, their active hedging, the ‘what ifs’ – they want a platform to support those workflows. With Portx, we say ‘here’s a set of workflows’ – you plug in your alpha, and we do the rest.”Kedia points out that the role of risk analytics has evolved from monitoring and reporting to real-time input into investment decisions. “As portfolios become more complex, PMs and traders are seeking greater insight into factor exposures, concentration risk, idiosyncratic risk, hedging effectiveness, and the potential impact of proposed trades. As a result, risk analysis is becoming a crucial component of the OEMS workflow. Bringing these tools into the OEMS and embedding them alongside the other data available in FlexONE, like real-time factor analytics, live positions, orders, executions, and the full order lifecycle data, means that portfolio managers and traders have a holistic, real-time view of portfolio risk at the exact moment decisions are being made.”
The argument for putting construction next to execution rests on the data already being there. “FlexONE sits at the centre of the real-time trading workflow. We have live positions, orders, executions, and the full order lifecycle in one place,” Kedia says. “By embedding risk analytics and portfolio optimisation directly into that workflow, alongside the data you’d expect from a modern OEMS, we can give portfolio managers and traders a holistic, real-time view of portfolio risk at the exact moment decisions are made. The Portx solution can also be flexibly deployed – available directly within the FlexONE UI or via our API suite.”
Unified workflow
Asked which client type drove the integration, Kedia widens rather than narrows: “In general, today, no matter the firm type or strategy, the buy-side is looking for increasingly sophisticated risk tools to deliver the real-time picture they need to optimise their decision-making. From a FlexONE perspective, we want to ensure that our clients – from the multi-strategy funds through to macro, quant and long/short – can access these analytics and tools in a unified buy-side workflow.”
Portx’s own positioning is narrower than that – discretionary and fundamental managers, the constituency least likely to have built an optimiser internally and most likely to be running portfolio weights out of Excel.
FlexTrade sees the integration as one instance of a longer consolidation. “It’s certainly a trend we are seeing,” says Kedia. “Over the past few years, we have seen a rapid shift from managers deploying disparate EMS and OMS solutions to adopting an integrated OEMS. Given that the OEMS is a trusted, mission-critical system, it makes sense to continue this trajectory by adding other analytics and capabilities to a single front office environment, such as risk, while also leveraging seamlessly connected solutions like a modern data warehouse.”
The same logic that merged the OMS and the EMS is now being applied one layer up: consolidate what the desk touches, on the grounds that the system holding the live order state is the system best placed to hold everything adjacent to it. For discretionary managers who have watched quant funds run optimisation as a matter of course, an optimiser reachable from the system already holding live positions and orders lowers the cost of entry considerably – no separate platform to licence, no reconciliation between what the risk system thinks the book is and what the desk has actually done.
Aaron Levine, Head of OEMS Product at FlexTrade, notes: “Our partnership with Portx expands and enhances the portfolio intelligence available within FlexONE, giving clients access to sophisticated portfolio construction tools and real-time risk insights directly within their OEMS. With FlexONE at the center of the full trading workflow, combined with Portx’s capabilities, we are delivering the mission-critical data and analytics that portfolio managers and traders need – at the exact point they need it – to better understand exposures, assess pro forma impact, and make more informed decisions.”
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