Combining risk and performance attribution analytics provides asset managers with a single view of past investment performance, the risks of future investments, and how actual returns compared to expectations. However, many middle offices still face challenges in combining these analyses due to legacy systems, increased data volumes, and regulatory requirements. Addressing this "synthesis gap" by aligning middle and front office systems and analytics could help asset managers generate comprehensive reports on performance and risk to inform strategic decision-making.

1. One Direction
THE BENEFITS OF COMBINED PERFORMANCE
AND RISK ANALYTICS FOR ASSET MANAGERS

2. Combining risk and
performance attribution
analytics in a single view
creates a much better
picture for the front office.

3. Why?

4. With a single view of the data, asset
managers can get an instant explanation of:
How the money
from previous
investments
was made.
How that
compared
with what was
expected.
The level of
risk if similar
action is taken
in the future.

5. Large asset managers, in particular,
need a big picture that is clear of
irrelevance and obsolete calculation.
They need a single data set that
enables them to analyze past and
future investments, over every
asset class.
THE NEED

6. But combining performance
and risk is still a real challenge
for many middle offices.
THE ISSUE

7. Three reasons:
Too many
legacy systems
performing only
one element of
analysis
Data volumes
have gone
through the
roof
Regulation,
regulation and
even more
regulation
WHY?

8. Nevertheless, having a single and instant view
of a mass of data is increasingly important.
It wasn’t always like this and recent market
and industry trends have created real strain
for middle office teams working with legacy
systems and processes.
BUT THE CHANGE IS HERE TO STAY...

9. “We believe the second half of the decade
will transform the middle office in a way not
seen since its inception. This evolution will
be driven by the convergence of some front
and middle office functions—namely the
generation of risk and attribution data.”
CITISOFT, 2016 OUTLOOK REPORT

10. What does
this mean?

11. The demands on the middle office
have now exploded. Because
complex investment strategies
continue to evolve as they search for
returns, the demand for more timely
data means the operational ability
of many firms is under stress.

12. Accuracy and regulatory
requirements have both increased.
Shorter settlement cycles are
becoming the norm along with a
greater need for transparency.

13. In short, asset managers are
staring down the barrels of:
More
data
From more
sources
With less time
to analyze it

14. If that’s not enough, operational
improvement and efficiency
are also top agenda items in
many of the large assessment
management firms today.

15. What should happen next is for
middle office and accounting (IBOR)
to provide core risk and performance
attribution data in a similar fashion
to the way they currently supply cash
and position data.
NEXT STEPS

16. Middle office risk and performance
attribution capabilities only scratch
the surface of front office needs,
with very basic models.
BUT THERE’S A CATCH

17. Many front office systems stem
from an organic development which
consists of PhD’s and quants working
with investment professionals.
Meanwhile, systems used by the
middle offices are primarily focused
on trade settlement and reporting.
BUT THERE’S A CATCH

18. The problem is not necessarily an
information gap but, rather, a synthesis gap.
Establishing the analytics to identify the devil
in the detail requires leadership to identify
which information is critical for reports or
dashboards that can be easily monitored.
SETTING UP THE SYSTEM

19. The more asset managers can align
their middle and front offices, the
more they will be able to achieve
a single data source. Once this is
done, the right analytics process will
give them the bigger picture…
… and a more robust definition of
past, present and future direction.

20. • Data security and quality are now top priorities for asset managers.
• The ability to generate reports around combined performance and
risk analytics is now a fundamental capability.
• But for many middle offices, combining performance and risk
analytics is still a real challenge.
TAKEAWAYS

21. LOOKING FOR
IMPROVEMENT IN
YOUR MIDDLE OFFICE?
Performance and Risk Analytics 2016-2020: why large
asset management firms need a combined approach
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firms are shaping up for the future.
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