IBOR – the next great hype?

Is IBOR (Investment Book of Record) the next great hype? I will share my own view later, but I suspect IBOR is to some investment management professionals, what Big Data is to some technologists – a lot of noise, a lot of consultant speak and a huge amount of misunderstanding.

So what is IBOR? I like Phil Tattersall of Simitas’ definition – “an independent book (of) record designed and engineered to meet the needs of the investment process in the broadest sense” – yes the definition is broad and all encompassing, but I think this reflects the fact that IBOR means so many things to so many people and any attempt to make it more specific excludes someone else’s potentially relevant views.

What is driving the demand and need for IBOR solutions? Well the investment management process is getting more complex, and there is huge competitive pressure and downward trajectory on fees, this in turn is driving firms to become more innovative and efficient. A well designed IBOR can allow a firm to make better investment decisions and optimize cash and collateral to drive more return in the IM process.

What are the front-office folks looking for from an IBOR solution? They want

• A dynamic centralised (across all custodians) position keeping system with support for full trade and order cycles
• Accurate cash and collateral positions to allow efficient and optimal use of accessible investment resources
• Real time view of executed trades feeding into position kept views that are updated dynamically to reflect corporate actions and complex events e.g. resets, open trades, coupon flows, maturity of swaps, dividend payments, convertible security events etc
• Views of exposures across counter parties, by manager, by asset class and by strategy
• Projections on future draw on cash and security/collateral
• Ability to handle complex events connected to OTC and exchange traded derivatives

So what are the issues impeding progress?

• Most investment management firms suffer from system fragmentation. For example they may have different platforms for active mgmt of equities, fixed income, derivatives, and foreign exchange. The fragmentation seen is often driven by best of breed selections which in turn makes the landscape more complex.
• More systems, means more data, more operating arenas and geo-regional timelines
• M&A and outsourcing activity can lead to greater number of back-office locations, systems and service providers

So what is IBOR?

• A dynamic intra-day update of cash and positions
• Something focused on front-office
• A lever point, something core to the investment process operating model and architecture
• Dynamic view of current positions, cash and slices’n'dices
• A basis for reconciling your Accounting Book of Record (ABOR)

So an IBOR is not just an ABOR updated to start-of-day with corporate action adjustments, and it is not just another data repository/mart.

So if you had to dig the road up once, what would the nirvana setup be? A single position keeping system that presents the different views of the world – back and front;  satisfying the need for IBOR views, ABOR NAV/accounting views. GAAP/IFRS reporting, out of the box ability to handle multiple custodians, trading venues, investment cycles, working days, follow sun etc – ….easy, right!

Clearly to succeed you need to be innovative, efficient, scaleable and happy to invest continuously in systems improvement. This is being driven by the need to be truly global. Investment managers know that to eke out performance they must minimize risk of bad investment decisions and optimize the use of available cash in the investment process.

So in essence, IBORs help you work smarter while minimising the risk of being caught with your pants down.

So is it all hype? No.

Is it misunderstood? Yes.

Should firms look at it? Yes.