Fixed Income Attribution solutions are notoriously data hungry, requiring immense amounts of data from many sources to seamlessly decompose portfolio and benchmark returns. Acquiring the data is just one small part of the equation - equally important is integrating, matching, and validating the data - not to mention ensuring the portfolio managers and external customers are happy with the selections. When it comes to choosing data vendors and data tools, the priority has typically been to focus first on selecting a vendor of index and analytics data that could meet the requirements of internal users and customers, and then simply leveraging that vendor’s data tools for a low (or no) fee.
However, the acquisition of Barclays POINT by Bloomberg has created an inflection point for change in the industry, and our customers have been asking: Is the time right to decouple the tool from the data? We think the answer is yes. Read on to learn why, and let us know what you think.
What has been the motivation for BISAM’s current customers to decouple provision of their analytics from their attribution platform?
Aligning the investment process with the attribution results. Many of our customers manage hundreds of billions of dollars, and use an investment process that relies on accurate analytics to make these decisions. Positioning their portfolio or fund along the yield curve requires a consistent set of analytics regardless of asset class. Decomposing the return in line with the decision making process and using the same set of analytics is vital - any small deviation can lead to residuals and distrust both internally and externally.
What are the benefits to decoupling your analytics provider and attribution platform?
It depends on the profile of your firm. There are cost efficiencies for those firms who rely on the analytics provided by the index families. For other firms, moving the production of analytics in house is paramount to aligning the decision making with the results production. These, of course, must be combined with strong multi source capabilities within your attribution solution - effectively allowing you to determine a hierarchal approach to using any analytics source.
What are the risks of decoupling?
Asset coverage. With the rise in multi asset class strategies, not all instruments are held by the benchmark (nor are all instruments exchange priced). A decoupled approach using an analytics engine can ensure total coverage of ALL securities in your strategy, but that comes at an operational price. That said, using a Hybrid attribution approach can ensure consistent results with inconsistent inputs.
Where are software and market data vendors headed?
Solution providers are increasingly embedding analytics engines into their applications directly. Performance & Attribution solutions are the recipient of high quality data from throughout the firm - including the upstream gold copy choices made regarding Terms & Conditions and Prices. By using this information, an alternate source of analytics can be created to serve as an alternate for all investments - or as a plug for off-benchmark investments. With a shift toward Multi Asset Class strategies that straddle the index families, the value of independent engines is becoming more tangible.
And what about you, our readers?
What is your point of view when it comes to decoupling your selection of analytics provider(s) from the selection of an attribution platform?