Diversifying strategies in tough return conditions
Asset managers are facing many challenges. Sparked by inflation, falling equity markets, interest rate movements and increasing recessionary risk, asset managers have struggled to generate returns for clients, with the S&P Composite 1500 Asset Management Index down 22% last year. This has translated to outflows in the U.S. for the first time in more than a decade. According to Broadridge, global Assets under Management (AuM) fell by 13% in 2022 to $96 trillion, making it the largest single-year decrease in the last ten years.
Exacerbating matters is that many asset managers have to comply with new regulations and data requirements, which are consuming a lot of their internal resources and eroding already thinning margins.
To counter some of these problems, asset managers are increasingly diversifying their strategies, by launching private market-focused funds. Although diversification can help firms generate supplementary returns and broaden their investor reach, it creates additional work for operations teams.
Ultimately, the ability to access data across the business as seamlessly as possible will be vital if managers are to overcome some of these challenges. Intelligent adoption of ABOR and IBOR could help facilitate this, but what does it mean in practice?
ABOR and IBOR as enablers
An ABOR is a centralized, accounting book of record that can be accessed to help with various investment functions and return calculations. It supports basic back- and middle-office functions, such as generating daily net asset value data, and day-to-day fund administration, transfer agency, and custodial services, as well as client and regulatory reporting. An ABOR is focused on costs, total net asset value, and charts of accounts. It is critical for determining cash positions, conducting reconciliations, and closing periods.
Historically, data from the accounting system had limited use beyond the back office. It was batch-processed at the close of each day and stored in an isolated database. It lacked the timeliness, context and accessibility necessary to support decision-making for the middle and front office. But today’s leading accounting systems function in real- or near real-time, aggregate data from internal and external systems, and provide robust reporting capabilities. To that end, the right accounting system can serve as an effective IBOR solution for mid- or smaller-size firms without the significant resources to implement and support a complex, dedicated solution.
The ability to seamlessly access data will enable asset managers to respond more quickly to market challenges, thereby averting potential losses. This will be essential if investment firms are to win mandates moving forward.
The IBOR goes further, providing users with broader, more granular and real-time views of performance and risk data. IBOR leverages a number of data feeds, including market data feeds (e.g. Bloomberg, Refinitiv), counterparty feeds (e.g. custodians, prime brokers, fund administrators) and trading feeds (i.e. FIX connections to trading venues or EMS).
IBORs are focused on market price and start-of-day and even intra-day positions. They support performance returns at the individual position level, with updates applied to historical holdings or open periods. With increasing market and regulatory demands, firms need to take decision-making, compliance and operational efficiency to the next level. That means they need better access to more comprehensive, accurate and timely data. This has become the hallmark of the modern IBOR.
Unfortunately, another defining characteristic of the IBOR is the complexity of design and implementation. Creating a single, real-time system that can sufficiently support the front, middle and back office requires a significant investment of time, effort and expense—one that increases proportionately with the size and complexity of a firm’s infrastructure. For the largest firms, this investment is justified by the business benefits of the IBOR. But for smaller firms, expanding the use of the ABOR to achieve similar results makes better sense.
Some asset managers are choosing to leverage external providers to support them with their IBOR/ABOR requirements. At a time when costs are rising and margins are being squeezed, outsourcing is often the most efficient option for investment firms during this difficult period.
A powerful IBOR to optimize your investment decisions
The Broadridge solution serves as the investment book of record (IBOR) to perform multiple activities for each asset class, including trading, risk and compliance, and asset servicing. With Broadridge, you can handle all these activities in various asset classes. This capability is available either as part of the integrated Broadridge solution or as a standalone IBOR for the firm’s current trade and execution management system.