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Maureen Nevin Duffy
Maureen Nevin Duffy
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Vendors Strive to Keep Up With Demanding Market

Time heals all wounds in performance measurement. For three years now, vendors have increased performance functionality and the ability to integrate with other portfolio management systems. Is the pendulum shifting from build to buy?

If you ask Neil Riddles, director of performance analysis for Ft. Lauderdale, Fla.-based Templeton Funds, what he wants in a performance measurement system, he'll tell you - fast response, flexible reporting in terms of time periods and the ability to report any return in any currency, among other things. He'll also tell you he built a system that meets those demands in-house.

This would come as no surprise to many vendors struggling to meet the increasingly sophisticated needs of performance measurement professionals. In 1996, a Thomson Investment Software Performance Services Group survey of 250 investment advisory, trust and other professional investment firms, found that the firms considered their performance measurement capabilities to be only slightly above average due to the failings of their systems.

They also expressed frustration with their systems' abilities to integrate with portfolio accounting and other systems; and 86% were concerned about meeting the Association for Investment Management Research (AIMR) standards.

Wall Street & Technology spoke to vendors and users, and surveyed 13 vendors to see what they offer now, as well as what's in the pipeline. The good news is that they seem to have been listening to the complaints addressed in the Thomson survey.

A big impetus among performance professionals to upgrade technology comes from heightened competition and the need to market those return numbers. "Portfolio management software vendors are dealing with three challenges: technology, regulatory changes and client needs," says Dave Spaulding, founder of the Somerset, N.J., industry consulting firm The Spaulding Group, who is also publisher of The Journal of Performance Measurement and wrote Measuring Investment Performance (McGraw-Hill, 1997). "Regulatory (and pseudo-regulatory, such as AIMR) changes must be adhered to, and these change-requirements can be significant. "

According to the survey results, nearly all 13 vendors offer some help with AIMR and, in some cases, Global Investment Presentation Standards (GIPS). Also, most claim to integrate easily with accounting or portfolio management systems.

Templeton's Riddles had his own list of musts for a performance attribution system:

It should use all of the portfolio's actual transactions.

Allow attribution of any portfolio vs. any other index or portfolio without reprocessing.

Allow user-defined attribution criteria (i.e., your own industries or return according to the analyst who suggested the stock).

And allow daily pricing.

Riddles feels he filled these requirements with Base-Two Investment Systems' Performance Attribution System (PAS), which will soon start crunching out monthly attribution data on some 30 portfolios, which represent a substantial portion of the equity assets run by the Templeton Group. (That number will go to 100 portfolios, says Riddles.) "Cecilia's (Cecilia Wong, Base-Two's president) software allowed us not to have to worry about the attribution software end of it. The package did everything we needed."

PAS, which resides on an IBM RS/6000 at Templeton, takes all of the security transactions from the portfolio accounting system, in Templeton's case the Max Data Multicurrency Portfolio Management System, by ADP. It takes all the buys, sells, all the corporate actions, along with a price for every security and calculates the return.

The system also connects to Templeton's proprietary pricing database. Index data downloads directly to a spreadsheet from Fact Set, a front-end research tool. The data is saved as files, which are imported to PAS.

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