There has been a resurgence of interest in the investment book of record, but what challenges do asset owners and investment managers need to overcome to implement an IBOR? And is it worth it?
The investment book of record (IBOR) is intended to provide a single source of up-to-date data on a firm’s positions, exposures and projections to support investment decision making. While it isn’t a new concept, it is becoming increasingly favored as a system/solution to improve operational efficiency and performance in our current low-return, low-yield environment.
The IBOR today can be thought of as a single real-time system that supports the requirements of the front, middle and back office across all asset classes. Not surprisingly, creating and implementing such a system can be very challenging. How can firms streamline the process?
Asset owners that have their investments externally managed are unlikely to have access to real-time data or need real-time positions. Similarly, those who hold their assets for a long period with low turnover may not require real-time positions either. In these cases, a traditional accounting book of record (ABOR), which is updated periodically from the back-office systems to provide an end-of-day or end-of-period snapshot, may be more useful than an IBOR.
On the other hand, IBORs can be compelling for firms that actively manage money, whether they are investment managers, insurance firms or asset owners. And while IBORs are primarily adopted to give the front office a real-time view of positions and cash, they also have advantages for the middle and back office, too.
“An IBOR helps the middle office with maintaining exposure to counterparties, supporting attribution, management and client reporting. For the back office, it helps with oversight for outsourced fund administration and helps to create operational flexibility within the firm,” said Vivek Jamwal, Managing Director and Country Head (USA) at Stradegi Consulting. “The point is that IBOR can help institutions and investors drive multiple use cases today.”
Data underpins every aspect of the IBOR. There are challenges with normalizing and integrating data from both internal and external systems, and with ingesting the data in real-time.
However, many financial institutions today are very conscious of the risks inherent in fragmented data, and far-flung, siloed systems. Their “drive to consolidate data and place appropriate checks and guardrails around it” can be an impetus for investment in both data management and IBOR, according to David Ingleson, Head of APAC for Eagle Investment Systems LLC at BNY Mellon.
The IBOR thus becomes an additional justification for the project to create a single enterprise-wide data system that also services other data requirements within the firm and helps it manage regulatory changes as well.
“From a technology perspective, we are seeing an obvious move towards application programming interfaces (APIs) as the consumption model for data. Previously, BOR data delivery was report- or portal-based. APIs enable real-time data requests and make it much easier for users to consume data sets,” Mr. Ingleson explained.
APIs allow firms to aggregate and deliver data from multiple internal and external sources and deliver it to users in a way that meets their individual needs. A secure, real-time IBOR is just one example of a new service that can be built on top of APIs.
Deploying any BOR is a large project that touches multiple systems and requires a significant investment of capital and time.
“These are complex initiatives and not something that should be taken lightly. Firms should set proper expectations on cost and time, and work toward providing meaningful value in program increments” said Mr. Ingleson.
“The global nature of financial institutions also introduces additional complexity during the design phase of a BOR project, demanding data management solutions that are available across multiple countries and time zones. Because of this scale, firms frequently now also implement really robust data governance strategies alongside what they’re doing with their IBOR or ABOR. And this often proves fundamental to their success,” he added.
For Mr. Jamwal, “Technology is not a magic bullet.”
“To implement any BOR you need to change your internal processes and retrain people to work in the new architecture,” Mr Jamwal added. “For example, you need to change how reconciliation is done, how the reporting is done, how you process corporate actions. It takes significant effort across the organisation.”
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