Guide to Investment Management Software: capabilities and how to select the right system

I've created this guide because it's a resource that I wish I had when I was on the buy side. Selecting Systems it's my hope that when you watch this video, you'll walk away with a few surprising possibly takeaways that you can take with you when selecting systems. Why Cost matters, but not in the way you thought it did why Workflow efficiency for end users is the most important thing to evaluate when comparing systems. How a different approach to connectivity and integrations can significantly increase the flexibility of your business and in the process reduce costs. An investment management system or a system for investment managers usually means system that covers functional capabilities from the front office and all the way through middle office and sometimes a little bit into the back office. Front to nav solution is what I usually refer to it as, and that means it's a little bit unclear where it stops. So where in the back office does it stop? It doesn't have a ledger typically. It does typically have shadow knife capabilities, so ability to calculate accruals, fees, etc. And to run reconciliations against fund administrator and or custodians I'm Christopher Furst. I'm the CEO and co founder of Illimina, a software company that services asset managers, asset owners and hedge funds. My background is from the front office and operations and bridging the two roles and I'm now in a very fortunate position where I've been on the buy side in your shoes and transitioned over to a software provider. So I know what it's like to be a client of systems. I know what it's like to compare and evaluate systems and select them and I can now give back the resources that I wish I had when I was in your shoes. Users include two different roles usually within the front office, portfolio manager, investment manager and trader or dealer. Those might actually be the same physical person for smaller investment managers, or they can be different departments for any multiple departments of each. For larger investment managers, investment operations is usually also one or multiple teams. They are typically daily users. Even in the case when workflows are exception based, as is the case with Limina, then they're still usually logged in on a daily basis. CTO and IT are usually stakeholders but not users, especially not for modern solutions that are cloud native. When the vendor like Limna manages upgrades and maintenance of the systems, etc. Compliance are stakeholders. They are part of setting up compliance rules, but then once set up they usually don't log in on a daily basis because it's notification driven, so they log in when needed which hopefully doesn't happen a lot often. Similar with risk, they set up what kind of reports they need if risk is part of the solution, and then they get those reports delivered and often aren't logging in and fiddling around in the system on a daily basis. There are three functional capabilities of a portfolio management system. The first one is monitoring portfolios that is in the form of a pivot table where you group on what you want and you select the columns that you want, exposures, yield, duration, committed capital, etc. It could also be in the form of visualizations like dashboard widgets, etc. The second is simulating changes to portfolios, so what happens if we reallocate assets in a certain way, for example. And the third is actually making changes to the portfolio, so entering orders, rebalancing, having a leader, follower, recalibration, etc. And Limnina is really, really strong on all of these three. We have the best position in cash engine, which means which is an IBO generation free. And that means you can simulate any change into the future, not just cash, but exposures. And you can see that on a very sophisticated and detailed level, which is specifically useful if you invest in private market fund of funds or even if you have a discrepancy between the settlement days on listed instruments. It's worth also to note that the portfolio management system is usually a cross asset system, so all assets within the same solution. And the reason is that when you make these changes you're usually affecting cash. And it doesn't make sense to make changes to subpart of the portfolio without seeing cash, which is extremely important to keep often to keep low so you don't have a cash buffer but also not get an overdraft. Depending on the system landscape, the order management system has up to four functional capabilities within it. The first one is order raising workflows, entering orders, rebalancing against a model portfolio, leader follower setup, etc. Which is also functionality that is in scope for a portfolio management system. So there's an overlap between between those two systems there. The second one is connectivity to execution systems EMSs to directly to brokers and to outsourced trading providers. The third one is pre trade compliance which is very commonly part of an order management system, but could theoretically be a separate system. And the fourth is transaction management, allocations, matching, even SSIs, sending trade files, etc. The uniqueness with LIMNA when it comes to the OMS is the efficiency of workflows. The goal of an execution management system is to Help traders and dealers get the best price possible when they execute an order in the market. The EMS usually has very deep market data connectivity, usually have very specialized workflows depending on asset class, IOIs, etc. Can have direct market connectivity DMA and is built to be very efficient and nimble to use. A lot of EMSs to achieve this are specialized in one or a few asset classes. Pre trade compliance and intraday checks on price movements etc. Are actionable for your investment team. If you have a breach, you can make changes and you can actually remedy the breach in one way or another while the post trade check that is being done sometimes, most often actually at nav time cutoff is used to prove compliance, but you can't really do anything about it. So if you have a post trade breach when it's time to set the nav, then it's not actionable. You can't do anything to help the situation, you're breached and that's it. So that's more a proof mechanism while the pre trade compliance and intraday checks are actionable for your investment team to do something about. To that end, it's very important that pre trade and intraday checks are built into workflows in an efficient way for the portfolio managers. One additional thing to note is that the way that compliance rules are configured within systems differs greatly between different systems. So in some systems it is hard coded which rules are possible so the provider would have to code each possible rule. And in other systems like Limina, there are rule builders available where you can configure your own rules, which means that rules are much faster to set up and maintain. You're not depending on us as a vendor and you can set up virtually any type of rule that you want yourself in minutes. Risk covers Scenario and Stress testing scenarios being simulating what happens with a portfolio if for example the Vix index changes, interest rates increase, etc. Either in isolation or in correlation with each other. Scenarios are what would happen to my portfolio in a historical actual scenario like the Lehman crash, the COVID pandemic, etc. The main difference is that the stress tests are hypothetical scenarios while the scenarios are actual historical scenarios being run on your portfolios. Performance attribution is comparing the returns of the portfolio against the benchmark. It could be on any type of segment like a sector, geography, etc. The different models to do this, one of the most common is the Brinson factor model. There are also different ways to actually calculate these numbers. There are approximations that some systems do. Or there are the actual true correct calculations which is time weighted returns, taking subscriptions into account in the correct way and doing daily calculations, which is the approach that LIMNA has taken. There are four areas that are usually covered within a system for operations. The first one is trade matching, an affirmation which is typically overlapping either with an order management system or it's part of a middle back office system, sometimes even two if those are separate systems. The second is cash management, position lifecycle, corporate actions, etc. The third one is NAD, shadow, NAV and reconciliations. And reconciliations is typically three sorry, six different areas, starting with transactions, then corporate actions, positions, cash, P and L and nab and usually in that order so that if you catch something that affects cash in the first three, then if you then find an issue in the cash reconciliation, you know that it's not one of the three previous ones.