(April 11, 2013) — Third party portfolio tracking technology providers have seen a huge improvement, but leading pension funds continue to build their own systems to account for the modular nature of their schemes.
Speaking at the aiCIO CIO Summit 2013 in New York, Greg Willamson, chief investment officer for BP America, told delegates that he believed external technology providers had come a long way to work on tailored systems to assist pension schemes.
“If I was to do this [look at portfolio tracking technology] now, I don’t know if I’d do it internally,” Willamson said.
“There’s been a huge improvement in third party systems and custodians are doing a much better job when it comes to data and the pricing of data.
“And while they might not have the greatest front-end, there are others who can create that for you.”
BP America first looked at investment dashboards in 1989, Williamson told the conference, and back then there were no third party solutions that were advanced enough to suit BP America’s needs.
Today, the fund oversees $18 billion. Its technology platform produces daily portfolio pricing and monitors its positions daily. It has also introduced external data and alpha overlay strategies, alongside stress testing analysis.
However, the conference also heard that for some risk officers, the systems were not tailored enough to interest every pension scheme, despite the advancements by third party providers.
Mike Edleson, chief risk officer at the University of Chicago, told delegates when he started at the university in 2010 there was no database at all, other than the data provided by the fund’s custodians and a few basic liquidity and risk models.
The $17.5 billion fund had typically employed what Edleson described as SADS – smart analyst, dumb spreadsheet – who used Excel to collate data, but struggled to maintain their database every time new variants, such as a new financial year or a new asset class, were introduced.
Causing a roll of laughter around the room, Edleson recalled: “You’d get the smartest 25 year old on the team and set them up, and then when the next guy takes over you find you’ve got this massive non-modular, spaghetti-coded mess.”
Edleson opted for a little-known technology suite which “no-one ever uses, and is the secret behind Microsoft Office” called Visual Basic – a third-generation event-driven programming language and integrated development environment from Microsoft, first released in 1991.
The system is designed to be easy to use and allows the whole reporting structure to be automated, as well as generating “a cool, colourful report”, in the words of Edleson.
His team built all of the applications themselves because “none of the external providers were modular enough for us”.
The University of Chicago looks first at how much risk they are allowed to expose their fund to – or in Edleson’s words how much risk they have to “spend”, in order to construct their portfolio.
This change in attitude completely changed the fund’s outlook and provided a “much more diverse set of opportunities”.
Using the benefit of the university’s unusual perspective, Edleson told delegates if they were looking at where to invest their money on technology, they needed to think about the integration and how they’d pull all of their data together.
“If a solution provider comes to you but doesn’t solve all of your problems, they’re not bringing you a solution. You shouldn’t be working for them; they should be working for you.”
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