The global view

Christy Bremner outlines to FST how the complexity of global markets requires sophisticated management tools.

FST. Market conditions recently have highlighted the expanded use of non-traditional asset-classes such as derivatives. How much business now flows through this kind of asset class?
CB. It’s hard to quantify exactly, but most firms are looking to these non-traditional, derivative type assets to generate the kind of returns that their customer base is looking for today. That means we see more and more of fund allocations going towards synthetic assets, and what is more, the creation of new kinds of derivatives is almost a daily occurrence at this point.

FST. And what impact does this have on institutions need clear and up-to-date reporting. What kind of tools are needed to provide this?
CB Well, from the back office perspective, it definitely creates complications. How do you track these things? How do you value them? How do you measure your risk and your exposure to them? And how you calculate returns on these things? Most derivatives are what is called multi-leg transactions. So for example a swap is a transaction in which you're buying something, and you're selling something to get something back, and they're linked together. So the tracking and accounting of these things is becoming challenging.

The guys up front drive the business; they're the ones who are deciding which assets to buy and sell and. And everybody downstream from the middle to back office has got to be able to keep pace; they've got to deliver the same standards that they have for say equities and fixed income over time. To do this they need transaction record keeping and accounting systems that can deal with these things appropriately and can produce the analytics necessary for evaluations of and the risk and return associated with them.

One of the key requirements is delivering good, solid information via reports to end clients. Clients are demanding better presentation quality, more graphics, better visuals, and all that is to be delivered by electronic mechanisms. So we're seeing a lot of demand for web-based client distribution reporting – it’s not quite as simple as printing out reams of paper on a quarterly basis anymore.

FST. With growth of global markets, and increased activity in Eastern-Europe, the Middle East and Asia, how can institutions get a uniform view of their positions – do they need more sophisticated systems?
CB. In conjunction with firms getting more diverse in their asset classes, they're getting into derivatives in different regions, with offices all around the world. The challenge this brings is having a global view of these accounts, and that requires a 24/7 rolling system. If there is a position being traded in Hong Kong that's a derivative, if the book is in London, how do they make sure they get the London perspective on that?

In response I think many of these firms are evolving towards a single system. But there is also an operational workflow around where their people are and how they're keeping the systems up to date with the activity in the front office. So how can the people in Hong Kong use the system so that it can be rolled up and somebody elsewhere can look at positions at any point in time?

FST. Increasingly institutions are outsourcing their portfolio management needs. Why is this?
CB. Some institutions are doing it because there's a cost benefit equation to this over the long term but usually, that's not the driver; the decisions tend to be driven more by strategy. Firms really want to focus on what their core business is, which is managing money. They've taken a corporate position that there are other people that are better at doing this than them.

We’re also seeing a lot of interest in outsourcing just part of the operations as opposed to the whole thing. Many firms are picking part of the process that they're the least good at or they've invested the least in, and they'll outsource just that piece.

Christy Bremner is the Global Managing Director of the Portia business at Thomson Financial. She has worked on the Portia product since the late nineties, having joined Thomson Financial in 1993. Portia is a portfolio management system, that automates the trading, analysis and operations of money managers in 40 countries.

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