Portfolio Management Software (PMS)

What is Portfolio Management Software (PMS)?

PMS is a broad term across more than the financial industry. In this article, we refer to software used by investment managers such as asset managers, pension funds, hedge funds and other professional investors.

This guide focused on capabilities and the definition. If you instead prefer to go deep on diversifications between systems, we have a post about investment portfolio management software that might be what you’re looking for.

At Limina, we have been clients (investment managers) and know that transparent advice is hard to come by. We appreciate that we might or might not be the best portfolio management software for you. In either case, we want you to choose the right system for your specific needs.

In short, Limina stands out in how we deliver functionality to you; optimised to reduce the time you spend on daily investment management workflows.

Different kinds of Portfolio Management Software

To complicate things, the term portfolio software is used by different buy-side firms to mean different things. As a rule of thumb,

For asset managers and asset owners, a PMS typically denotes a Front Office system used for portfolio modelling. It’s sometimes also referred to as portfolio construction software or even portfolio analytics software.
For hedge funds, a PMS usually refers to a back office system, i.e., it’s used to manage the administration of portfolios. This includes process support for setting NAV at the fund or share class level. It also involves storing and updating time-series (assets, cash, FX) and GIPS performance calculations.

The hedge fund interpretation of portfolio asset management software, is referred to as an Investment book of Record in the context of asset management.

Both interpretations make sense:

One interprets it as a tool for portfolio managers to manage their portfolios
Whilst the other sees it as a tool for operations to administer portfolios

This dual use of the same term has caused significant confusion in the buy-side industry. In fact, the dual definition of Portfolio Management Software can make vendor shortlisting more challenging for both asset managers and hedge funds.

A deeper dive into

Portfolio Management Solutions for Asset Managers & Owners

Asset Portfolio Management Software is a system asset managers and asset owners use for portfolio modelling and decision support. The portfolio manager software can be used to conduct what-if analysis of hypothetical changes to a portfolio. Sometimes, it also includes features for rebalancing and calculation of orders (e.g. % NAV, duration targeting for fixed income, mass rebalancing to a model/benchmark).

Features of the top portfolio management software

Portfolio manager tools provide a range of features to make it fast and transparent for portfolio managers to simulate investment changes. Here are some key features of a PMS for asset managers and asset owners:

Always present?

Description

Portfolio construction software

Create and analyse portfolios based on various criteria such as risk tolerance, exposures, and investment objectives. Sometimes. the system will have in-built functionality to optimise asset weights.

Simulation and what-if scenarios

Simulate changes to holdings. i.e., help Front Office users answer: “If I make change X, what will happen to my risk and exposures?”. That could be anything from exposures to the duration profile of fixed-income positions.

Rebalancing

More commonly part of an Order Management System (OMS), rebalancing is the alignment of a portfolio to a model or benchmark – or a discretionary subscription distribution. Capabilities of the best systems include forward-looking cash and exposures.

Portfolio analytics software

Exposures (Net, Gross, Delta-adjusted, etc), Sensitivities (Greeks, CS01, DV01, Duration, Convexity, etc), Stress tests (Correlated shocks, historical scenarios and market shocks) and Value-at-Risk (VaR)

A deeper dive into

Portfolio Management Systems for Hedge Funds

For a hedge fund, portfolio management software means the system for portfolio administration. It’s the system used to ensure positions and cash is accurate. Dive deeper here: hedge fund software.

Features of the best software for portfolio management in hedge funds

A PMS for hedge funds often covers most asset classes, at least those common to hedge funds. Examples include derivatives and stock portfolio management tools. Here are some key features that are typically found in a PMS for hedge funds:

Always present?

Description

Portfolio tracking and analysis

Track investments and analyse portfolio performance, on a day-by-day basis and/or in real-time. View key metrics such as profit and loss (P&L), usually across all asset classes and investment strategies in the same system.

NAV management

Process for cutting a valuation and position snapshot at the NAV time (end-of-day or intraday). Valuation of each position and approval processes.

Time series management

Storage of NAV timeseries to be used for reporting. Can include other timeseries data as well, such as P&L, cash, FX and position (including strategy level) valuations

General ledger / Subledger

Ledger production, primarily used in the past to shadow official investment accounting (typically managed by a fund administrator). Nowadays, shadowing NAV and running reconciliations is often enough

Reporting

Generate standard or customised reports. Recipients of reports could be internal stakeholders, clients or regulatory bodies.

Other Concepts Commonly Confused with Portfolio Software

There is a noticeable trend towards adopting broader systems encompassing a wider range of functional areas. A PMS, as it’s known to an asset manager, is becoming less common as a standalone system. Nowadays, the PMS is often part of an Investment Management Software (IMS) or Front-to-Back Office system.

The following illustration highlights where asset portfolio management solutions fit into a system landscape in the context of an asset manager or asset owner. Each column represents an operating model (also called “system landscape”), from an all-in-one solution to the left and a best-of-breed solution to the right.

Buy-side system examples, from best of breed to front to back

PMS-OMS-EMS breakdown

Essentially, the Front Office (FO) can be broken down into the following three parts:

PMS Portfolio Management System - Discussed in this article. It can be summarised as helping Portfolio Managers answer, “What should my positions be?”
Trade Order Management System - An OMS helps portfolio managers make a reality of the target holdings that the PMS helped generate. The OMS usually cover compliance controls and substantial audit capabilities. Handovers to traders typically happen in this system. An OMS also supports single trade entry and strategy trades.
EMS Execution Management System - An EMS helps traders execute the orders that the OMS created in the market.

A Front Office workflow example

Let’s use an example of a passive fund manager, tracking an index. For this manager, the index is the target portfolio, hence there is typically no need for a PMS. The OMS takes the index as input and provides functionality to rebalance the actual fund to the index (continuously). The need to rebalance stems from market prices (if the index weights don’t float with market prices), deposits/redemptions, corporate actions and other events (e.g. coupon payments). Once the fund has been rebalanced, orders are sent to the EMS for execution in the market. Nowadays, it’s uncommon that OMS and PMS are separate systems.

Broader platforms

What is an Investment Management System (IMS) then? It's an enterprise platform that streamlines and centralises the operating model across the front, middle and back office. An IMS covers the entire investment lifecycle, from the Front Office to the reconciliation of positions and cash. It integrates compliance and managed data throughout the process in a seamless manner. Compared to an OMS and PMS, an IMS is much broader. EMS functionality can be part of an IMS as well. However, this is less common and offers less additional value to have it integrated into the unbroken workflow chain in a single system.

Benefits of Cloud-based Portfolio Management Software

Portfolio Management SaaS (Software-as-a-Service), i.e. a cloud-based PMS, offer a range of benefits, including:

Faster, more robust portfolio construction & analysis tools An alternative to using a PMS for an asset manager or owner is often Microsoft Excel. The best technology makes constructing portfolios and analysing “what-if” scenarios faster and less prone to human error. The average portfolio manager spends 15 minutes per day with Limina, freeing up a lot of time for other tasks.

Access from anywhere

SaaS for portfolio management, means being able to access the system from wherever you are. Including when travelling, out for lunch, or working from home. It can be securely on any device without remote desktop solutions or VPN.

Access from anywhere lowres

Audit of decision processes

A Portfolio Management SaaS solution logs the process of formulating target holdings. The system stores an audit trail, which you can retrieve at any point should it be necessary, for example, to provide evidence for a specific investment decision.

Scalability and flexibility

Cloud Portfolio Management Software is usually well suited to handle a growing number of portfolios and positions, support multiple asset classes, and adapt to changing investment strategies.

Scalability and flexible Front Office tools enable investors to efficiently manage their evolving business without spending precious Front Office resources to rebuild spreadsheets.

Integration with your ecosystem

The best portfolio management technology is simple to integrate with existing systems. Unfortunately, this isn’t the case for the vast majority of PMSs. In most cases, you depend on either custom code or vendors to manage integrations (at a cost).

Another way is a configurable import/export engine, where users can create connections in 3-5 minutes. Limina uniquely offers an import/export engine - read more here.

Finding the best portfolio management software

We hope this article has helped you understand one of the most used, yet least well-understood, concepts in the buy-side industry: the Portfolio Management System.

Should you wish to receive regular updates on financial portfolio management tools, research and guides - please subscribe to our monthly email (scroll down to the footer). We also have a complete guide to choosing the best investment management system, available for download: here.