Time for the next-generation investment book of record – Eidos

Any buy-side manager in the past 25 years would tell you that investment support systems are a perpetual thorn in their side. The need for real-time control over exposure and risk, effective collateral and margin management, and integration across front, middle and back offices is further exacerbated by compliance regulations and market volatility. 

Throughout the years there has been no shortage of offerings claiming to provide the silver bullet. Unfortunately, many of these systems have fallen short of their promise, leaving firms with a legacy of cumbersome systems and complex architecture. Some software tools and systems that have made their mark include best-of-breed models, order and execution management systems (OEMS), OEMS + investment book of record (Ibor), and front-to-back (F2B) software. 

Best-of-breed models tend to comprise multiple execution management systems – often verticalised by asset class – and one or more order management systems. This patchwork-like solution proved unable to deliver reliable and timely information, is expensive to maintain and enhance, and is prone to failure. 

OEMS sought to minimise the need for reconciliation and potential points of failure by reducing the points of entry and exit at the front. However, the architecture neglected the middle- and back-office components and was unable to master the complexity, depth and span of functionalities and analytics required. 

The combined OEMS at the front and Ibor at its back promised to reduce the number of possible points of failure while simplifying the best-of-breed architecture. This approach was so appealing that the terminology became ubiquitous. Many front-office tools, no matter how niche or limited their reach, suddenly became a multi-asset-class OEMS. Similarly, many providers of middle-office, middleware, data warehouse, business intelligence and accounting tools became vendors of multi-asset-class Ibors. While there were some success stories, many more were disappointing, which led to buy-side firms becoming sceptical and losing confidence in systems claiming to provide an OEMS + Ibor solution.

As the asset management sector consolidated geographically and functionally, firms’ requirements were becoming more clearly defined. Demand was growing for a holistic solution that covered the full spectrum of the investment business, end-to-end or F2B. However, the reality was that many software providers simply relabelled their existing approach as F2B. For vendors who did rise to the challenge, the approach taken was not always efficient or effective.

According to Sergio Capanna, director of product management at Calypso, there is a fundamental problem with many F2B solutions. A front-office system that relies on ready-made position data cannot handle the complexity of the back end. It’s beyond its capabilities to build full sets of enterprise investment data starting from individual transactions and applying the necessary logic of a liquidation engine, a pricing engine, a profit-and-loss (P&L) engine, and so on, in real-time.

According to Capanna, the only possible direction from which to build a true end-to-end system for buy-side firms is from back to front. The only system that has the capability to do this is an ‘intrinsically correct’ Ibor.   

Calypso Technologies’ end-to-end Ibor, decision and order support (Eidos) is the only effective and efficient way to bring together suppliers and consumers of enterprise investment data. 

Eidos is truly end-to-end: from reconciliation with the fund administration and fund accounting service providers at the back, to portfolio analytics, decision support and implementation (order generation) at the front. It generates and maintains the ledger of positions for any status and at any time, based on the full set of transactions and events. It also calculates and reconciles accounting and investment P&L. 

This system overcomes the issues that faced the traditional best-of-breed approach while guaranteeing maximum business agility. The production and consumption of the enterprise investment dataset through to the generation of orders is handled within a single system (the intrinsically correct Ibor), with only the execution of the orders outsourced – not necessarily externally – to best-of-breed tools.  

Eidos provides data and analytics across all asset classes under a shared framework for risk, regulatory compliance and investment limits. It is also fully compatible with the latest trends for trading-as-a-service or outsourced trading desks.  

As history has shown, choosing the right technology to meet the needs of the firm matters much more than adopting market-driven acronyms. An investment support solution should be open and easy to integrate with incumbent legacy systems so that the firm can simplify and consolidate the total number of systems serving the business. But perhaps most importantly, it should provide asset managers with confidence the data and analytics they rely on to make investment decisions is comprehensive and accurate. 

As renowned American computer scientist and professor Alan Perlis once said: “Simplicity does not precede complexity, but follows it.”  

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