Portfolio return attribution has long been an important responsibility for asset managers, but it has become substantially more difficult in recent years, especially in the fixed income space. Spurred by two prominent trends – low interest rates and the rise of passive investments – there is a growing need for best-of-breed analytical platforms that can help navigate this shifting landscape.
That includes fixed income attribution and analytics (FIAA). Historically, this functionality was difficult to implement because of the number of instruments, the variety of payoffs and the volume of data required to perform calculations. This data includes credit curves for carry estimates attributed to the ultimate parent structure for mapping, interest rates or inflation curves for dedicated exposures, terms and conditions for complex OTCs, corporate actions, pricing libraries and other nuanced features. Even today, most asset managers lack the bandwidth to build and maintain an in-house solution for FIAA, leading them to engage third-party providers.
We are proud that Confluence was recently named Best-in-Class vendor in Aite Group’s “Aite Matrix: Fixed Income Attribution and Analytics.” The report, which includes detailed breakdowns of several providers in the industry, highlights key FIAA trends and explains how Confluence’s solutions best help asset managers keep up with them.
One of these trends is the importance of cloud-deployed technology. As with other capabilities deployed across the investment lifecycle, the cloud is quickly becoming table stakes for FIAA solutions because it enables efficient data acquisition and management, fast computation, agile development cycles and demand-driven scalability.
At Confluence, we are at the forefront of this trend, and our 2019 acquisition of StatPro is a primary reason why. Over the years, StatPro worked tirelessly to build a multitenant, future-proof cloud solution capable of the data-intensive functions that FIAA requires. Now fully integrated into Confluence, it also minimizes friction with version control and upgrades while offering a variety of APIs to extract data and results, so clients can feel secure knowing that our infrastructure is flexible enough to meet any challenge.
Another key trend revolves around data – more specifically, data management. It is well understood that FIAA requires a huge volume of data, but recent market developments – namely the rise of ESG and systematic investments – demand the capability to manipulate this data to build tailor-made performance reporting that reflects portfolios and investments strategies. Data-as-an-object is becoming a central concept in the analytics space and leveraging a data model is a key requirement for asset managers looking to track sources of income from various angles and to identify alpha. The Aite Group report highlights the necessity for vendors to provide a range of data services to arm their clients with additional insights on data quality, sourcing and standardization and usage within various calculations, as well as the ability to build custom aggregations.
Finally, access to multiple attribution models and factor model customization functionality are prerequisites to making performance analysis a key component of the portfolio monitoring process. By building performance reports or digital dashboards to precisely dissect the sources of alphas, asset managers can fully integrate performance reporting with their investment decisions and offer advanced reporting to their end-clients. As performance analysis must be intuitive and broken down in a way that aligns with both macro and micro allocation decisions, Confluence clients can also access performance and risk analytics on a single platform and leverage the same factor models across both modules and a streamlined process.
At Confluence, helping clients make sense of their data is a huge part of what we do. We provide a warehouse for agile investment data management, a data transformation module to enable disparate datasets to work together, and powerful tools that enable clients to generate their own pricing and benchmarks. That is in addition to the FIAA solution itself, which can ingest high volumes of this data and use it to run precise performance decomposition.
We are proud to be recognized for our FIAA solution at a time when asset managers need it more than ever.