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.
OTC Vanilla Options
Barrier / Digital Options
Interest Rate Swaps (OTC and Cleared)
Cross Currency Swaps
Constant Maturity Swaps
Fixed coupon bonds
Floating rate bonds
Credit Default Swaps
Money Market Funds
Funds of Funds
Purpose: Sales, What-if, Internal, ...
Real-Time P&L (derivatives & cash)
Sensitivity analysis (absolute)
Sensitivity analysis (relative to benchmark)
“What-if” scenarios (absolute)
“What-if” scenarios (relative to benchmark)
Brinson performance attribution
Time-weighted rate of return for GIPS standard compliance
Dietz, Modified Dietz and Modified BAI
P&L attribution (derivatives)
P&L Explained (derivatives)
VaR Simulation [Historical, Monte-Carlo and Parametric]
Stress Testing /Back-testing
Cash flow analysis
Classifications of the liquidity of fund portfolio investments
Liquidity ratios under “What-if” scenarios
Liquidity ratios under Behavioral scenarios
Limits on illiquid investments
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
Margin Call Management
Limits & Compliances Management
Limits can be configured in absolute term or in relation to the capital invested
Investment mandate Limits
Approved investments Limits
Cash Position Limits
Securities Position Limits
Collateral Management dispute
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
SWIFT (MT & MX messages)
Bond, Warrant Corporate Actions
Equities voluntary and mandatory corporate actions (stock & cash)
Corporate Actions Claim Management
Withholding Tax Processing
Corporate Actions reconciliation
IOSCO Bilateral Margin
Trade registrations in different jurisdictions
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