Many of the market's leading portfolio management systems have added robust analytic modules to their systems. But rather than portray themselves as one-stop shops, most vendors are emphasizing integration with specialized analytic packages. Adopting a best-of-breed approach to analytics, portfolio systems vendors such as Thomson
Investment Software, Princeton Financial Systems, Financial Models Company, Advent Software, ITS Associates, SS&C Technologies, SunGard Portfolio Solutions and Integrated Decision Systems are sensitive to customer demand for integrating with widely used analytic services.
Barra, Vestek, Wilshire and FactSet are on every list of equity analytic systems, while Yield Book from Salomon Smith Barney, Bond Edge from Capital Management Sciences and Sun Bond from Lehman receive leading mentions in the fixed-income category. Positioning itself more than the others as a standalone, "multi-encyclopedic" system, Integrated Decision Systems' GIM II promotes the considerable power of built-in analytics along with its powerful interface with external analytic vendors.
As high-end tools, portfolio systems integrate analytics with front-end priorities such as order management, or back-office functions such as pricing, accounting or performance measurement. Michael Morini, senior vice president, SS&C's asset management business unit, typifies the vendor view: "Our philosophy is to allow clients to select their preferred source, and connect them as seamlessly as possible to the information they want." Products such as Financial Models' Pivot or Princeton's PAM Analytics illustrate this across-the-board push for full analytic integration.
Depending on the vendor, portfolio management systems can integrate analytics around certain core front- or back-office functions. For instance, SS&C offers an integrated, straight-through processing solution for decision support, trade order management, accounting and reporting. "The view," says John Fitzgerald, president of ITS Associates, "is that to run some analytical product, a user should not have to maintain a separate database - it should feed off a data engine already in service." For example, as a system designed to allow portfolio rebalancing, re-allocation and order generation, ITS's Query2/Trader can run trades against a model or other metrics, followed by compliance checking. In addition to handing off the final execution to PMIS (Portfolio Management Information System) for portfolio accounting, performance measurement and reporting, Query2 links to a data warehouse for portfolio information, including analytical data such as Barra or Factset.
"The analytic packages tend to be specific not only to the functions, but more importantly to the people performing them," observes Pamela Pecs Cytron, vice president of SunGard's portfolio solutions group. "If a manager whom isused to Bond Edge moves to a new firm, he might still want the flexibility to continue using it. Every leading analytic package is used at the large shops we service."
The vendor's challenge is to woo the users beyond "standalone" analytics by integrating various functions. In some cases, managers have to upload or manually input data. In others, data is exported from their back-office system.
The need for integrated solutions is growing. "Managers want their pet analytical systems," says ITS's Fitzgerald, whose Query2 and Query2/Trader systems interconnect with analytical systems. "But they want to have them operate within the overall systems infrastructure," he says. "That means, they may use a product such as Query2 with a data warehouse, and want their portfolio positions (valued of course) from their back-office system blended with data from research systems such as FactSet."
Clients demand seamless integration, but often for different reasons. "Managers are not looking for vendors to re-invent Barra and other reliable services," notes Fitzgerald. "They want vendors to incorporate analytics, but more from a presentation view. Integrating the solutions is the key." Some users are clinging to systems that work, even if they have several of them, he says. It is actually easier and cheaper to rely on the "old engines" and build around them. "Some users build in-house proprietary trading systems that might or might not incorporate existing analytic packages. Smaller managers tend to be less specialized."
SS&C's Morini sees the converse: high-end shops are more likely to build their own in-house analytics to interface their portfolio management systems, he says. "Larger fixed-income shops tend to interface with products such as Bond Edge, while smaller shops tend to export to Excel to perform calculations."
in the beginning: data
A best-of-breed approach to analytics makes sense because many entrenched managers are already using these separate analytic vehicles, says SunGard's Cytron. "We support commercial analytics as an ancillary piece of our product." Best-of-breed analytics frees portfolio systems to operate at a higher tier by moving data back and forth.
Data warehousing, or some other form of data management, is generally seen as the core engine, although products excel at this to varying degrees. SunGard, for example, operates data centers with direct feeds to analytic packages on over 200 client LANs globally.
Thomson Financial pursues a similar approach with data warehousing by consolidating infrastructures around database hubs that support global clients in multiple regions. "These operations extract large cost savings by aggregating data from multiple providers," says Robert Leaper, director of business development for Thomson Financial.
SunGard Portfolio Solutions' Portfolio One and On-Site integrate existing commercial analytics into the enterprise environment. Data movement and access is a core function that drives its product. Whether a client is dealing with analytics, trade order management, accounting or performance measurement, the issue, according to SunGard's Cytron, is "How do you manage that data?"
The question looms larger whenever a portfolio system integrates many different pieces. SunGard saves the clients' having to tap innumerable data vendors themselves to integrate the system under one roof.
"Our clients download data directly from us, so that our solution becomes the book-of-record," says Cytron. SunGard's large clients "fit data in our system, or port to any package they want."
Integration around a core function - such as folding analytics into accounting or performance measurement - is a major benefit of a high-end portfolio management system. For example, ITS's Fitzgerald says, "The accounting system is the core engine, and the other reporting, query and trading systems interconnect." Yet integration can just as easily occur around a different function, such as performance measurement.