• Gerard Rafie

Modern Portfolio Management: Do you have what you need?

Updated: Dec 4, 2019



This is part of a series of papers to bring transparency in solutions delivered in Capital Market.

This publication details what functions/features to expect in a typical modern Asset Management desk.

It brings clarity to an institution that is selecting or deploying an Asset Management solution in what to have as a minimum. It also acts as a high-level road-map checklist for software companies developing Asset Management solutions.

Any solution providing less for an Asset Manager will not produce the required return over investment.

I will split the document into Products and Functions.

Products:

FX

  • Spot

  • Forwards

  • Swaps

  • NDF

  • OTC Vanilla Options

  • Barrier / Digital Options

  • Asian Options

  • FX Futures

Interest Rate

  • Interest Rate Swaps (OTC and Cleared)

  • Cross Currency Swaps

  • Basis Swaps

  • Constant Maturity Swaps

  • Inflation Swaps

  • Cancelable Swaps

  • Swaption

  • Cap/ Floor

Money Market

  • Loans

  • Deposits

  • FRA

  • CD

  • CP

  • T-Bills

  • Call accounts

  • Repo

Fixed Income

  • Fixed coupon bonds

  • Floating rate bonds

  • Mortgage bonds

  • Perpetual bonds

  • Corporate bonds

  • Amortized bonds

  • Bond futures

Credit Derivatives

  • Credit Default Swaps

  • Asset Swaps

Equities

  • Stocks

  • Futures

  • Forwards

  • Listed options

  • CFD

  • Equity Swaps

  • Dividend Swaps

  • Variance Swaps

Funds

  • Mutual Funds

  • Money Market Funds

  • Funds of Funds

Functions:

Order Management

  • Order blotter

  • Order management:

  • Life Cycle

  • Merge

  • Split

  • Assignment

  • Compliance

  • Allocation

  • Allocation optimization

  • Rules

  • Execution

Trade Capture

  • Purpose: Sales, What-if, Internal, ...

  • KYC

  • Product Check

  • Classifications

  • Rules

  • Enrichment

  • Regulatory Compliance

Portfolio Management

  • Position management

  • Real-Time P&L (derivatives & cash)

  • Benchmark management

  • Sensitivity analysis (absolute)

  • Sensitivity analysis (relative to benchmark)

  • “What-if” scenarios (absolute)

  • “What-if” scenarios (relative to benchmark)

  • Asset Allocation

  • Portfolio rebalancing

Performance Measurement

  • Allocation analysis

  • Portfolios returns

  • Portfolios contributions

  • Benchmark comparison

  • Performance attributions

  • Brinson performance attribution

  • Time-weighted rate of return for GIPS standard compliance

  • Dietz, Modified Dietz and Modified BAI

  • Sharp Ratios

  • Information Ratios

  • P&L attribution (derivatives)

  • P&L Explained (derivatives)

Risk Management

  • VaR Simulation [Historical, Monte-Carlo and Parametric]

  • VaR attribution

  • Stress Testing /Back-testing

Liquidity Management

  • Cash flow analysis

  • Sensitivity analysis

  • Classifications of the liquidity of fund portfolio investments

  • Liquidity ratios under “What-if” scenarios

  • Liquidity ratios under Behavioral scenarios

  • Limits on illiquid investments

Hedge Accounting

  • Fair value, cash flow and translation (net investment) hedging strategies micro and macro/gap based.

  • Re-hedging and carrying the original ineffectiveness

  • Multi-currency support in case of cross currency hedges and FX exposure hedges

Collateral Management

  • CSA Management

  • Margin Call Management

  • Optimizations

  • Interest Management

  • Dispute Management

Limits & Compliances Management

Limits can be configured in absolute term or in relation to the capital invested

  • Credit limits

  • Country Limits

  • Issuer Limits

  • Investment mandate Limits

  • Approved investments Limits

  • Concentration Limits

  • Cash Position Limits

  • Securities Position Limits

  • VaR Limits

  • Sensitivities Limits

Alerts

  • STP breaks

  • Risk limits

  • Compliance limits

  • Collateral Management dispute

  • Corporate Action

  • Credit events

IBOR

  • Real-time, and consolidated view of positions and cash independent of back office systems

  • 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

Trade Life Cycle

  • Nettings

  • Expiry

  • Termination

  • Extensions

  • Novation

  • Exercise

  • Knock-In/Knock-Out

  • Resets

Processing

  • Confirmations

  • Settlements

  • Payments

  • Matching

  • Disputes

  • Reconciliations

  • SWIFT (MT & MX messages)

Corporate Actions

  • Bond, Warrant Corporate Actions

  • Equities voluntary and mandatory corporate actions (stock & cash)

  • Corporate Actions Claim Management

  • Withholding Tax Processing

  • Corporate Actions reconciliation

Regulatory

  • MiFID II/MiFIR

  • Dodd Frank/EMIR

  • IOSCO Bilateral Margin

  • Trade registrations in different jurisdictions

  • N-PORT, N-CEN

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