Author: CloudAttribution – cloudattribution.com
As diversification and uncertainty become more prevalent in the market, there has been an inflow in AUM to Multi-Asset portfolios. As investors look for protection from a more diversified portfolio, now more than ever, knowing confidently how much each asset class and investment decision contributes to relative performance is extremely important to help identify true sources of return.
Focus within the attribution space has centred on Equity attribution followed by Fixed Income leaving Multi-Asset underserved and asset management teams having to self-serve via spreadsheet and database analysis with its inherent risks and limitations.
Accurate Multi-Asset Attribution is hard to realise, systemise and deliver. Many challenges come from systems designed to handle equity attribution attempting to extend into fixed income and running into complexity which impacts the accuracy of the results and an inability to bring the two together.
Our experience is that the main challenges faced when looking to provide accurate, daily, transaction based multi-asset attribution come from the following areas:
- Incorporating the complexity of Fixed Income
- It involves a large number of securities (benchmarks / ETFs etc)
- Currency exposures are hidden, hard to identify and attribute
- The rise of strategy tagging over fixed classifications
Attributing for Modern Portfolio Management
CloudAttribution understands that managing multi-asset portfolios usually involves an interesting mix of equity and fixed income techniques and is largely driven by the nature of modern portfolio management such as:
- Disaggregation of portfolio decision making
- Increasing prevalence of derivatives, often in overlays
- Managing currency separately
- ETFs provide a whole new set of instruments that can be used to gain exposures
- Providing look-through capability
This combination of factors has moved this from a fairly straightforward attribution process to a significantly harder one. Compounded at a time when, clients demand more detailed analysis and portfolio managers require greater insights into the sources of return.
In our experience of working alongside Fixed Income and Multi-Asset teams we have built and solved challenges such as:
- How to reduce the number of securities needed in the attribution increasing operational efficiency
- How to capture and attribute currency exposures
- The role of integrated strategy tagging
- How to incorporate fixed income
- Providing look-though
- Handling currency as per clients expectations
Understanding how to overcome these challenges is one thing, delivering an integrated solution which sits alongside, and evolves, with the current operational and technological make up of various asset managers, is another. All whilst increasing efficiency in data requirements, reducing costs and providing scalability.
Expectations are that complexity will continue to grow in portfolios and Multi-Asset and Fixed Income will be the areas where most of the effort is expended in understanding return drivers.
Find out more
To understand more about our Multi-Asset (and Fixed Income) Attribution approach and capabilities please visit our new website by following this link:
Or take a look at our whitepaper for more details around our Multi-Asset approach:
Contact us at [email protected] for further information and a demonstration of our systems capabilities.