How the Right Technology will Simplify Your Life - part 2
: 26 Sep 2016
In the previous article, I discussed how technology can help CTAs with back office tasks and potential headaches. Here I am looking outside the trade, to setting up and collecting and distributing performance information, especially to clients.
Tear Sheet Creation
One of the more time-consuming tasks for an advisor is the production of the marketing summary that is emailed each month outlining the performance of their programs. The production of performance statistics, comparison benchmarks, and other information contained in the document often requires hours of preparation.
Software designed to address this problem allows the author to set up the document layout and style to fit the organization’s requirements, select from multiple charts and tables and save the definition for use each month. When it is time to prepare an updated version of the tear sheet with the information from the most recent reporting period, it is simply a matter of clicking a button and entering the commentary; hours become minutes.
Performance Attribution
As investors and regulators get more sophisticated, the requests for the attribution of an advisor’s returns get more complex. Attribution by direction (long/short), by sector, by market, by strategy, net of commissions, without commissions, by NAV, by trading level, by timeframe, all are becoming standard types of requests. Add to this that these reports are required every day and must be sent to a variety of investors, and not having a flexible reporting database fed directly by your trading and accounting can overwhelm a firm’s resources.
Email Encryption
With the latest Interpretive Notice from the NFA on Rules 2-9, 2-36, and 2-49, the requirement of encrypting all data in motion is nearing reality. This means that any emailed or FTPed report your firm generates and sends will have to be encrypted. It also means that any client information your firm receives (statements for example) will be encrypted as well.
Manually decrypting files when they are received or encrypting them before they are sent will place an extreme burden on your operations staff because each source and destination will have different encryption keys, passwords, and methods.
Solutions like subscribing to a service that encrypts all emails is one approach. A more flexible, easy and cost effective approach is a system that is integrated with your trading and reporting systems and automatically encrypts files and reports that are to be sent as part of the sending process and decrypts statements or other inbound client information as it is received.
Performance Fee Calculations
Handling managed accounts often means different fee calculations for each account. Daily liquidity means additions and withdrawals can occur at any time. Combine the two and you now have a complex performance reporting and fee calculation environment. Yes, it could be done in Excel, but no, that is not traceable and it is prone to errors from simple copy/paste mistakes.
A better solution is a system that is directly linked to your trading and calculates performance using the daily compounded returns method, allows formula-based fee basis formulas for management and incentive fee calculations at the account level, and automatically adjusts the high water mark when additions or withdrawals occur. The results are daily NAVs without the need for manual intervention or the risk of error that a spreadsheet brings.
Client Reporting
What do you do when each of your clients want different types of reports each day? If you don’t have a flexible system designed specifically for customized client reporting, someone in the firm spends time after the close preparing the reports and manually sending them to clients. If, for some reason, that person has the day off, the process may not run as smoothly under the best circumstances. If something in the “process” goes wrong, life gets very interesting.
If, instead, you had a system that allowed you to define what types of reports each client is to receive, in what format, via what sending method, the reports would get produced automatically as part of the end of day process; no manual intervention required.
In these two articles, I have outlined the key areas where effective automation is key to the smooth and cost-effective operation of a CTA. Systems that have been designed to be flexible and integrate all the aspects of a CTA’s operation provide a higher level of client services at a lower operational risk and are able to grow with the organization.
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Dana M. Comolli is president of DMAXX (dmaxx.com), a back office software design firm for alternative investment managers. TheBooks software is designed for the trader, and is built to do price, position and order management, reconciliation, trade accounting, performance reporting, risk and data management and act as a gateway to a wide variety of execution platforms. You can reach Dana at: [email protected]