Improving Investment Management Operations: Performance

Performance reporting is at the core of investment management business processes. It is how the ‘story’ is told to investors. It is how compliance with policy statements and mandates is demonstrated. It is core to how success is measured. For many, the performance process is integral to the investment process and, as such, is considered a component of the firm’s unique marketplace offering. And this variety of purpose and audience contributes to the complexity of investment management performance calculation and reporting.

From a technology perspective there are several systems – or aspects of integrated systems – that come together to calculate and report performance. Information from portfolio accounting, transaction recordkeeping, compliance, and composite membership management systems (to name a few) are supplemented with additional data including pricing, exchange rates, benchmarks, and risk measures. The information is fed to a graphics-rich reporting engine which may or may not recalculate inputs. As a result, the operational processes supporting the integration of performance data and systems can become as complex as the systems themselves.

Because of this, shoring up data validation and data integration with the firm’s ecosystem has the greatest impact on firms’ efforts to streamline the operational processes related to performance measurement and reporting.

When data governors¹ ensure that component data is complete, clean and compliant, downstream performance reporting for all audiences and purposes is simplified. Of particular importance for accurate performance measurement – and prone to error – are datasets such as management fees (particularly those calculated and charged by third parties); income transactions; missing, late or adjusted prices and corporate actions; and account status indicators (which can impact composite membership eligibility). Much of the data is fed from third parties, and data governors’ vendor relationships play a key role in maintaining the integrity of the ecosystem data.

Downstream, transparency to underlying data sets and access to projected outlier conditions assist performance data users to troubleshoot errant results. And data users’ understanding of conditions that may cause visual anomalies in performance reporting is critical in the firm’s ability to interpret data for investors and other consumers of performance information. The importance of data access and interpretive skill is magnified as our entire industry experiences a rise in investors’ desire not only for customized performance approaches², but also for customized performance reporting formats and media.