BISAM has long been recognized as a leader in the Fixed Income Attribution space, due in no small part to our early and sharp focus on providing an application that provides consistent results within the firm, but also outside the firm. We have watched our customers embed the results coming from B-One into direct conversations with their clients, marketing literature, client reporting, etc. Through this process, we have realized that our customers’ clients have become more and more educated. Their historical inattention has turned into a keen eye to manager performance as it relates to their fixed income investments. They understand the impact of interest rates on a bond, the positioning of a portfolio in a specific sector or rating and its impact on spreads, the positioning of a portfolio along the curve and its impact on duration - all in the quest for alpha. Related reading: Fixed Income Attribution – Meeting Client Expectations in a Changing World
And while clients’ knowledge and expectations have changed and evolved, the application used by portfolio managers to both create and explain the portfolio: POINT – has remained the same.
The transition from POINT to an alternative solution or set of solutions has been extensively researched, surveyed, and discussed. Industry consultants will tell you that firms are focused in two key areas as they consider alternatives: application functionality and data.
In today’s post, we’ll explore the application functionality side of the equation.
The rise of the Middle Office Platform
Historically, the front office was left alone to choose an application that served the requirements for portfolio management and customer conversations. This would result in a proliferation of results that should have told the same story, but never got close enough. An estimated return and attribution out of the front office solution was trusted by the portfolio manager, but the official return and attribution out of the middle office had the most accurate and validated data. Even though the middle office could prove their result was superior to the front office, they were powerless to push it through to the client (sound familiar?).
As firms consider alternatives to POINT, chances are they’re ensuring the results delivered to clients are validated and verified. Estimated results - whether based on holdings alone, estimated prices, unofficial analytics - are no longer sufficient to support the needs of the customer. In an era of record-low interest rates, any alpha must be accurate and transparent. Any and all challenges to the explanation of alpha must be remedied, and a sharp focus on the quality of data is necessary.
Our customers have indicated they are most concerned with the transition of POINT’s attribution functionality to PORT. They are confident the Portfolio Management functionality will be successfully ported (rebalancing, allocating, optimizing), but have consistently called to light the concern around attribution. We think it’s different - we think the needs have sufficiently changed and what POINT offered is no longer enough. One size does not fit all, and no one system can be the best at everything. In order to satisfy the needs of all parties, firms are realizing that replacing their reliance on POINT with multiple systems is necessary.
Fixed Income Attribution Methodology
Attribution is a key measure of the success of a portfolio manager meeting the mandate of the client. It is vital that any performance attribution tool align with the investment mandate of the portfolio manager, else it will not highlight the areas of alpha generated. The most important aspect of this is the methodology in which the decomposition occurs. Firms who relied on POINT were comfortable with the way in which the decomposition occurred - explaining the return of the portfolio as a function of Currency, Curve, and Spread effects. POINT was a leader in standardizing this methodology, but this is no longer relegated only to POINT.
Even before the news of POINT’s sale to Bloomberg, BISAM took active steps to increase adoption of the Fixed Income Attribution results provided by B-One. We are developing a Hybrid attribution methodology, Duration Times Spread (DTS) weighting algorithm, increasing our Multi Asset Class capabilities, increasing our support for data quality testing and providing enhanced reporting channels. B-One has long been used beside POINT for reporting to our customers and your customer. We think it’s time to use B-One instead of POINT.