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IBOR: Many Answers to Many Problems?

By Judy Blackwell

Issue 97
September, 2014

The term Investment Book of Record (IBOR) was coined in the late 1990s and has recently gained new life as the latest “must-have” for investment managers. Most would agree about the core function of an IBOR—to provide up to date positions and projections to the front office throughout the day. In contrast to an IBOR, an Accounting Book of Record (ABOR) often provides positions and projections at close of business or period. An IBOR requires immediate updating, while an ABOR can be updated periodically, and an IBOR requires fewer accounting details than an ABOR. The consumers are also different—end of period and official reports require ABOR data; they cannot be based on IBOR data.
During our current CutterResearch study of IBOR, our analysts found that, beyond the core function, definitions tend to be subjective, with fluid boundaries and content. Further confusing the issue, different software vendors use the term to describe solutions based on a range of applications.

Defining an IBOR

"Having an IBOR is not the goal. The goal is the delivery of accurate information to business users throughout the day, such that they can make the best possible decisions based on that data."

Hugh Griffiths,
Managing Director, CutterConsulting

Some investment management firms see IBOR simply as a way of providing the core functionality—delivery of accurate intraday position data to portfolio managers—in a more reliable, controlled, and efficient way than common custom solutions, often maintained in Microsoft Excel. These firms focus on the decision-makers’ need for timely positions data across the portfolios they manage. For them, the scope of an IBOR must include all the positions, transactions, reference data, and market data required to support functions such as portfolio analysis and construction, including unconfirmed transactions and projected movements of cash and investments.

To other firms, an IBOR must also serve as a common resource, a consolidated store of information on which to base enterprise-level reports, such as exposure, performance, and management reports. This type of IBOR solution appeals to firms where firm-wide data aggregation is complicated by the existence of multiple accounting platforms, whether in-house or from third party administrators.

There has been an effort by some buy-side firms to establish a standard for IBOR – the IBOR Standards Working Group was set up by a group of IT and data management practitioners. In May 2014, the group submitted a paper to the Investment Management Association in the UK, currently under discussion, outlining among other things, proposed standards for IBOR core capabilities that focus on managing data, including the quality of data for positions and events, as well as the quality of supporting reference data.

At Cutter Associates, we have carried out a number of studies and assignments on IBOR and we will soon send out a survey to our CutterBenchmarking community. Based on our ongoing experience, our definition of an IBOR is as follows:

An IBOR delivers the current best available view of investment data suitable for investment decision-making, incorporating the following:

The current status and forward projections of:

  • Portfolio investment holdings, with a breakdown of transactions and security lifecycle events, and their statuses (for example, proposed, committed, or confirmed)
  • Cash positions, with a breakdown of transactions and their statuses

 

Reference data and derived analytics supporting the investment decision making process

 

What exactly is the Problem?

Each investment management firm has unique business pressures and drivers moving them toward an IBOR solution. In a CutterResearch survey of member firms conducted in summer 2014, respondents named these top four challenges driving the need for an IBOR (listed in order of importance):

  • Need for intraday view of portfolio holdings
  • Need for intraday cash positions and projections
  • Multiple OMS and/or accounting platforms, necessitating a consolidated view
  • Multiple regional start of day/end of day cycles

 

IBOR challenges and requirements fall into two broad categories: the front office need for data to inform investment decisions, and similar information aggregated across the firm to provide reports at the enterprise level. In the words of Andrew Meisel who is credited with inventing the term during his time at Barclays Global Investors, these are known as the “desk IBOR” and “central IBOR” respectively.

 

Behind these business problems are often complex operating environments and fragmented data architectures that make it difficult or impossible for users to get the information they need, when they need it. Contributors to these underlying issues can include the following:

"There are many more IBOR systems running off portfolio analytics platforms out there than people realize. They're often user-owned systems…that tend to be local to desks, and strategy-specific."

Andrew Meisel,
Meisel Consulting

  • Multiple OMS and accounting systems, reflecting mergers, acquisitions, or different structures across business units
  • A history of selecting the best specialist system for each function and asset class
  • Outsourced administration and accounting services
  • Legacy applications operating on a batch update cycle

 

In the past, data management initiatives commonly focused on data hubs for managing reference and market data. But there were really no equivalent data hubs for intraday cleansing and distribution of positions and transactions, even though data warehouses were used for periodic, end of day, and historic data. The requirement for timely position data is not new, but firms are now ready to invest in better automation to replace the informal and ad hoc solutions they’ve been using.

What is the Solution?

With the promise of timely, accurate information, an IBOR can seem like the solution to all of the problems mentioned. But what is the best way for a firm to implement an IBOR? Much depends on the types of assets managed, the existing systems and architecture, and how the front office is organized. The solution also depends on your definition of an IBOR, including which business areas and downstream applications will use the data. The IBOR could be designed to provide a timely set of traded and forecast positions for a team of portfolio managers, or for all front office users in a division or region. It could be further extended to serve as a comprehensive position-keeping facility across asset classes, covering the full transaction lifecycle for the entire firm. However you decide to implement your IBOR, the operations and data management functions will play a critical role.

Solution vendors define IBOR in different ways; not surprisingly; many have applied the term to existing solutions. Most of these products already provide the core functionality of intraday position keeping, although some products need to be extended to include this. The vendor solutions are variously based on:

  • Investment accounting platforms that update positions in real time, driven by events or transactions as they occur, that can maintain the IBOR as well as the ABOR
  • Order management systems with added position-keeping capabilities, including corporate actions processing and reconciliation with the ABOR to ensure alignment of cash and securities positions at a specified point in time
  • Data aggregation or data-centric solutions that act as hubs that receive positions data from transaction systems, then redistribute it in near real time
  • Integrated, front-to-back solutions that record changes to pending and traded positions as they occur and maintain accounting books

 

An IBOR is not necessarily a single software application, and in fact is often the result of several applications working together to provide timely data to the front office. In this situation, data architecture and integration are critical, as they are to all the vendor solutions outlined above. Even integrated front-to-back options require robust integration with a variety of internal and external data sources, and they are frequently supplemented with third party portfolio modeling and analytics tools.

A solution must also be a proportionate response to the business problem being addressed and must offer a reasonable return on investment. If portfolio managers are spending their valuable time extracting and cleansing data and constructing views to suit their processes, an automated solution could bring substantial cost savings. A more robust solution can also give intangible benefits including improved quality of data for decision-making and the resulting reduction of operational risk.

What it All Means to You

IBOR has more than one definition and the way that buy-side firms approach an IBOR solution depends on the problems they are trying to solve, the complexity of their organization structure, and their existing technology environment. Solution vendors see IBOR as an opportunity, and most of their products are based on existing applications, some with major extensions. But there are many possible means of arriving at the goal of clean, timely, and complete position data, and an IBOR does not have to be a single application, nor a vendor product.

Some would say that portfolio managers already have an IBOR—after all, they are making investment decisions daily. But is the process to create the IBOR efficient? Is it complete, accurate, and timely, or is it dependent on the use of local, often spreadsheet-based, workarounds? Ad hoc approaches may be acceptable in some cases, but many investment managers now operate in a complex, risk-aware, fast-moving environment where a properly automated and managed IBOR solution is becoming essential.

About the Author

Judy Blackwell has more than 30 years of information technology experience within the investment management industry. She joined Cutter Associates in 2006 and has worked as part of CutterResearch since 2007. Recent research assignments have included Managing Alternative Investments, Preparing for Central Clearing of OTC Derivatives, Research Management Systems, and Front Office Data.

Prior to joining Cutter Associates, Judy worked for a number of investment management firms as a consultant and in project management roles. Her experience includes IT strategy, technology outsourcing, and business process outsourcing programs. She has experience in institutional asset management, as well as retail and private client business, and has managed large-scale projects developing and implementing front and back office systems.


For firms struggling with any aspect of how to effectively implement an IBOR, Cutter Associates can help. With expertise in OMS, data management, and operational best practices, Cutter has the resources and insights you need to succeed. For more information, contact us at 1 339 469 0600 or by email connect@cutterassociates.com.