Multi-asset software [trading/OMS, portfolio & investment management, risk]

An Order Management System (OMS) covers order-raising workflows, e.g. rebalancing to a model or benchmark – and more complex scenarios such as leader-follower setup and automatic managed account (SMA) handling, including pre-trade compliance.

From there, orders are routed for execution via brokers, Execution Management Systems (EMS) or outsourced trading providers. A cross-asset OMS can support anything from exchange-traded, to fixed-income and even fund investments electronically. Some assets, like alternatives, are mostly manual from a transaction handling perspective (but must still be supported).

The OMS manages all downstream transaction communication, such as allocation, matching, trade files, and even settlement instructions (SSIs).

It makes a ton of sense for an OMS to be multi-asset because:

• Your portfolio planning becomes across entire portfolios, seeing cash holistically.
• Compliance checks are performed on full portfolios with a complete picture of all assets (e.g., issuer exposure, where an issuer can have issued multiple asset classes).
• All trade operations workflows downstream are seamlessly connected (as opposed to fragmented across multiple systems).

Trading systems (Execution Management Systems) might be the best candidates for a separate system per asset class. This is because the downside of having a system for each asset class is low, and the upside is high.

• Downside with one EMS per asset class. There is not one place to oversee all trading. However, the real-time status of all trading can be fed to the OMS, where users can see assets holistically. You can also leverage the OMS for reporting, such as counterparty analytics and TCA information (no need to rely on the EMS for this).
• Upside with one multi-asset trading system. It’s simpler for users to have one system where they manage all trading. This is especially true for dealer teams responsible for multiple asset classes and investment types – for example, one team overseeing both fixed income and equity, instead of two different teams. However, they still see all assets in the OMS in real time.

Portfolio Management Software (PMS) has two interpretations:

• For Asset Managers and Asset Owners: A tool to analyse hypothetical changes to portfolios or model portfolios. For example, see the impact of a model change on multiple portfolios compared to their benchmark. Plan cash and exposures in time so that settlement matches up and exposures are aligned to day-by-day targets. Finally, monitor the portfolio metrics you want (exposures, sensitivities, committed capital, yields, etc).
• For Hedge Funds: A mid-to-back office application, which we cover under the “Operations” section in this article.

The trend is clear: most investment managers want multi-asset portfolio software. As soon as you have multiple asset classes in just one portfolio, you need a system to cover all those assets. To understand why, consider the alternative where you’d have private investments, equities and fixed income in three different portfolio management systems. Making changes would mean you don’t see exposures or cash holistically, so you can’t accurately plan cash – leading to cash drag.

Two functional areas are less necessary to have as part of an all-in-system: risk and performance attribution systems (the latter less applicable for hedge funds). The reason is that these are simpler to integrate, with data flowing in one direction once per day – as opposed to bi-directional in real-time or multiple times per day.

It’s still critical that these systems are cross asset, because numbers won’t be accurate otherwise. Many risk calculations aren’t linear, i.e. aggregating them doesn’t give a correct number.

The best multi-asset risk systems are Axioma (acquired by SimCorp / Deutsche Börse) and MSCI Barra. At Limina, we provide multi-asset risk software as part of the system, through a partnership with Axioma. Numbers are natively embedded in the Limina web user interface (no need to log in elsewhere).

Within operations, you have functional capabilities such as reconciliation, shadow NAV, cash management, corporate action & position lifecycle management. These are impossible or at least hard to perform per asset class. In reality, NAV and cash don’t exist on a per-asset class level, so any attempt to create slices and aggregate them will create significant overhead with no upside.

Within investment data management, asset class specific functionality might include:

• An example of automated data quality control is price checks. A stale price or large movement for an equity differs significantly from a bond. A sound system has these types of checks built-in, configurable per instrument type so you can get relevant notifications – and not noise.
• Reporting is a broad term and is usually required to be cross-asset. It’s important that it can filter on asset classes and any mix of columns. Read more about Limina’s 6 different types of reporting capabilities.