Ask the Expert: "Top Down/Bottom Up" Performance Reconciliation with Sean Murray

Posted by Erika Alter, Global Head of Commercial Strategy, BISAM on Jul 1, 2016 9:48:27 AM
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Introducing BISAM's "Ask the Expert" blog series. This latest thought leadership program taps both internal and external experts within the BISAM community to discuss key points of interest and innovation in buy-side analytics, covering everything from Performance and Attribution and Market Risk, to Data Management, Implementation and Technology. As always, we hope you find the series to be informative, and we invite you to submit your own questions for the expert via the comment form below.


This week, to launch our new series, I was pleased to sit down with BISAM Expert, Sean Murray, Director of Product Strategy for BISAM's B-One solution. For our inaugural post, I asked Sean to share some of the latest trends he's seeing when it comes to our customers' "non-traditional" use of B-One. Following is my Q&A with Sean.

ESA: Sean, you are a seasoned industry expert when it comes to P&A software, which means you have a good handle on the industry in terms of how it has evolved and where you see it going. Outside of the more traditional “cookie cutter” use cases, what additional P&A business requirements are our customers asking BISAM to help support?

SM: The notion of reconciling the “official” fund return with the “investment” portfolio return is a key “ask” being brought to us by our customers.  Many of our customers need to layer multiple aspects of performance and explain or “reconcile” the differences to their fund managers.

ESA: Can you give us some examples of where a performance manager might need to reconcile processes and/or results?

SM: We are learning that there are fairly common factors, such as timing differences of trades between a firm’s investment portfolio view and fund administration view, for example. Or another example, with our U.S. 40Act Fund customers in mind, is the impact of fair value pricing vs. non- fair value pricing. And so on.

ESA: So these buckets people want to understand – what they’re asking for is attribution in a way, correct?

SM: Yes. It’s a different way of looking at attribution. Investment performance views have always supported internal needs from portfolio managers to executives to fund management teams.  But when it comes to external stakeholders – our customers’ clients are buying mutual funds and they are buying the official returns, which may ultimately differ from what gets reported internally. Various factors, such as the ones I’ve just outlined (trade timing differences, fair value pricing, etc.) need to be reconciled so that internal stakeholders have a view of the top down and bottom up returns. Internal operational processes must take these differences into account.

ESA: So this approach of reconciling bottom up with top down performance reporting must have some strong benefits for firms that want to understand overall performance vs. individual manager performance. Would you agree?

SM:  Yes, exactly. The same factors I’ve previously mentioned can impact the view of managers’ contributions to a fund. So for example, if your fund’s official return is 2% and today’s bottom up is 1.8%, is the difference due to a particular manager’s active decisions, or the result of operational or environmental challenges (e.g. pre/post-tax reporting, liquidating markets, manager turnover, etc.)?  Let’s say, for example, you have high turnover in a portfolio - your managers are buying and selling a lot in a day. You’d expect differences in bottom up and top down results, since there is lag in trade settlement time, which impacts fund returns (top level). But if you don’t measure that in as a factor, the difference could overinflate or underestimate a manager or managers’ role in the fund’s performance.

ESA: So firms are trying to figure out how to shine a spotlight on this difference?

SM: Yes. Accuracy of data has been a longstanding goal of performance teams.  On the investment performance side, the focus has been on inbound data validations – effectively not trusting the investment performance data until you’ve proven its health.  This is another area of a quest for accuracy, but brings two somewhat disparate views together.  The classic “PMAR” approach is the foundation of understanding the contribution of any manager into its investments (i.e. attribution). This is of course a key factor in year-end compensation determinations.  The reconciliation process helps the operations teams reinforce quality, and the investment teams their sources of return so they can maximize alpha.  

ESA: So how have firms been solving for these requirements to date?

SM: We’ve seen two primary approaches to solving this problem: a “Frankensteinien” series of propriety systems - spreadsheets, software, etc., or there are in-house proprietary systems and databases (e.g. ACCESS) that have to be managed and maintained – which also typically falls to the performance team. Our customers are coming to us to help them leverage something more controllable, and we have and continue to further develop the B-One capabilities with this in mind. I’d be happy to speak with our customers and prospects about how we’ve helped several of our clients, particularly 40 Act Funds and Multi-Manager houses already solve for some of the business problems I’ve just outlined.  

ESA: Thank you Sean. And to our readers who would like to take Sean up on his offer, please leave a comment below or contact us at and we'll put you in touch. You may also read Sean's previous insights here:

Topics: Reporting, Performance & Attribution

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