By Michel Lempicki, corporate development director at StatPro Group
“Bad news isn’t wine. It doesn’t improve with age.” So said Colin Powell, Vietnam veteran, when he was chairman of the US Joint Chiefs of Staff during the Gulf War. In today’s investment climate, as in military circles, that maxim still holds true. It has become apparent that in times of market turmoil, investors need to access their risk, performance and attribution applications on a daily basis.
The 2008 crash and the recent market shockwaves have demonstrated that providing investors with rapid and readily digestible performance data is an imperative. The reporting function has therefore once again become a focal point for asset managers; however, it is an area that has evolved considerably in recent times.
Traditionally, investor report production occurred on a monthly cycle. When the middle office collected data from the back office applications, the data had to be cleansed and validated before the process of report production began. As a consequence, the ensuing PDF reports could only be emailed to investors (or the front office) three, four or five days after month end. As a result of the heavier burdens created by spiralling regulation and a new generation of investors for whom self-serving information is second nature, the middle office reporting output is changing from a static production process to a more dynamic, interactive relationship. The cloud enables the middle office to share the data internally at great speed, but also externally to investors who want access to portfolio information more frequently and in a user friendly format.
We are entering a new era in investor reporting where the data is used in an interactive way. This trend is being driven by two factors: the need for more transparency in reporting and the greater appreciation of the potential of the cloud. The same portfolio data that the data management function has been manipulating can now be made available to the investor through a cloud-based analysis tool. With an interactive reporting application, the investor does not control the source data itself but rather the usage of that data.
This introduces more reporting flexibility and the potential for scenario testing. For instance, for a single portfolio, an investor might traditionally have a breakdown per country or sector on their report. This is a fixed report based on the mandate the investor has given that asset manager. However, investors are now demanding other types of analysis, for instance by sub-sector or currency. Even for many institutional investors today, the process of reviewing an asset manager’s reporting capability is being driven by the need for more interactivity.
The requirement for portfolio managers to access performance and risk data in an interactive way – making a comment, sharing a viewpoint – is particularly beneficial when the markets are on the slide. Fund managers can post a reassuring note on the cloud-based system and in this way be more ‘visible’ to the investor. The investor doesn’t have to sweat for a month before discovering how much money his portfolio has lost. This creates confidence that poor results are not being ‘hidden’ by the asset manager and investors can analyse the data in the way that they prefer.
It’s not just portfolio managers and investors that seek this dynamic content. Marketing teams can also benefit greatly in terms of fund promotion data. The reason is that the marketing department regularly assists the front office in the delivery of bespoke analysis that is utilised in investor meetings. In this way, marketing and portfolio managers are putting additional pressure on the middle office team.
These ad hoc requests are not, however, adding real value to the middle office function. They usually involve simple but time consuming tasks such as arranging data in a different format or doing ‘cut and paste’ in PowerPoint or Excel. By providing the front office and marketing team with access to the data through the UI, they can self-serve with the precise requirements for those investor meetings. As a result, the middle office team can focus on what they do best: insightful analysis.
Do the current market shockwaves spell the end for monthly cycles and paper reports? The shift from monthly reporting to interactive analysis on-demand could not be more opportune; however, static reports are not about to be eliminated. Whilst investors are increasingly appreciating the ability to access performance and risk data more readily, the traditional monthly paper report will survive. Not only is it a requirement of some industry regulators, many investors still like to view the aggregated data in a monthly report or factsheet. Nevertheless, giving investors the option of accessing and viewing their portfolio data in the way they desire and whenever suits them best is a compelling argument at an unsettling time such as this.
Especially if the investor is a former four star general.