In response to these industry changes and new requirements, vendors are enhancing their reporting capabilities, specifically using the internet, as well as adding system flexibility. There is a significant increase in new and enhanced product offerings and there are now over 20 performance attribution systems in the market. Cutter Associates is currently conducting a detailed evaluation of all performance attribution systems for members of The Technology Council™.

Performance attribution systems are becoming intertwined with risk management analytics. Some vendors have integrated risk measures into their performance applications while others are buying risk management systems and integrating these systems with their existing performance applications. Furthermore, many firms now require daily attribution whereas less than one year ago, daily attribution was not a priority and hence was not available in the majority of systems.

Fixed income attribution has proven to be especially onerous although there are several new packaged solutions in the marketplace. There is no consensus on models for breaking down the components of return on fixed income portfolios; there are numerous data and pricing issues for fixed income securities; fixed income benchmarks are complex, data intensive, difficult to maintain and not readily available, to name a few. In November 2002, there were three systems that provided fixed income attribution (duration, shifts in yield curve, spread changes, credit rating, etc.) in their integrated performance measurement and attribution system. Since that time, three vendors incorporated this level of attribution into their systems based on different methodologies with another one still under development. Very few clients have implemented these vendor solutions outside of those who partnered with the vendor in design. Because of the differing requirements for fixed income, many firms deploy multiple systems to accommodate the requirements of various products.

Unlike fixed income attribution, there is general agreement within the industry on the algorithms and methodologies for equity performance attribution. Most systems provide the necessary level of flexibility required for equity attribution, specifically in classifications structures and benchmark functionality, with minor differences in linking methodologies and type of models supported.

The investment management industry will continue to put huge demands on performance attribution systems. The question remains whether or not systems providers can provide the necessary functionality.

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