Accounting for Performance Measurement

The most critical objectives of the investment enterprise—including growing AUM, minimizing risk and ensuring compliance—depend upon the accurate evaluation of risk and return. It’s not surprising that performance measurement is one of the most widely discussed practices of investment management. At PMAR, the Spaulding Group’s annual conference dedicated to performance measurement, attribution and risk, which took place last month in Philadelphia, the impact of data integrity on performance measurement was a popular topic.

The connection is simple. Bad information leads to the misinterpretation of performance, which exposes your firm to risk. In other words, the accuracy of your performance measurement depends upon the accuracy of your data. The problem is that all data is not created equal. Third-party data is especially subject to variations in quality because it adheres to standards that vary from provider to provider. By the time it becomes available for reporting within your organization, it’s impossible to know how it was treated. Were the proper corporate actions applied? Were securities accurately identified and classified? Is the market valuation up to date? Any deviations, oversights or errors on the part of your providers become your own.

The only way to ensure data meets the quality standards of your practice is to validate it yourself. That’s why the best foundation for performance measurement is an independent investment book of record (IBOR) based upon accurate accounting.

With an independent IBOR, all of the components that contribute to performance are current, accurate and available at any given time. Data is reconciled in real time and presented in the unique context of the practice—from the application of corporate actions and classification of securities to current valuation, income and expense calculations. A single, consolidated view of investment performance organized and aligned to your business provides unparalleled insight into your portfolio’s performance.

It’s no wonder IBOR has been edging to the top of the wish list for today’s investment management practices. The resources required to maintain it can be prohibitive for some firms, but a service-based solution delivers the same results at an affordable cost.

Broadridge puts an independent IBOR within reach for firms of all sizes. Our comprehensive investment management solution leverages a cloud-based platform with integrated investment accounting, data management and reporting, and adds expert accounting services to ensure accuracy. Building upon the resulting foundation of quality information, the solution provides a rich set of tools for deep, flexible performance monitoring. It employs industry-standard calculation methodologies to present GIPS-compliant results and the ability to build performance using either Modified Dietz or true time-weighted return calculation based on daily security valuations.

Learn more aboutBroadridge Investment Accounting.

Author Raj Bansal is Vice President for IT Governance and Strategy. He can be reached via email.