In today’s fast-paced investment environment, many firms are seeking ways to streamline their processes and reduce the operational burden on their teams. For those managing composites, this is particularly important, especially as they grow and accumulate more client accounts under management. The operational demands of tracking performance, ensuring compliance, and managing disclosures can become overwhelming. Fortunately, there are sophisticated composite management systems that exist to help ease the workload by automating many aspects of the process. These systems not only improve efficiency but also help maintain compliance and ensure accuracy; benefits that can transform composite management from a tedious task into a more streamlined process and ultimately allow firms to focus on more value-driven tasks.
Composite management systems are often confused with portfolio accounting systems. A portfolio accounting system and a composite management system serve distinct yet complementary roles in investment management.
Portfolio Accounting Systems are designed primarily to manage individual accounts and portfolios. They focus on tracking portfolio holdings, transactions, income, and expenses, providing a detailed view of each portfolio's balance and cash flows. These systems excel at account-level data processing and generating reports on portfolio-specific metrics such as returns, holdings, and transaction histories. Some portfolio accounting systems also offer basic composite construction functionality.
Composite Management Systems, on the other hand, are specialized for creating, maintaining, and reporting on composites—a requirement for performance reporting and compliance, especially under the Global Investment Performance Standards (the “GIPS® standards”). These systems aggregate multiple portfolios that share a similar investment strategy into composites, automate composite construction, calculate time-weighted returns at the composite level, and ensure that portfolios meet specific criteria for inclusion. They also support compliance by providing tools for accurate performance calculations, composite rebalancing, storing disclosures and other compliance documentation, and producing client-ready presentations for marketing.
In short, while a portfolio accounting system focuses on the detailed data management of individual portfolios, a composite management system aggregates this information to create standardized, accurate, and compliant performance reporting across portfolio groups.
Investment managers, no matter how large or small, must figure out the most cost-effective way for their firm to be able to market their products to potential prospects and current clients. Creating composites to report performance can be a major challenge for firms who rely on their portfolio accounting system or spreadsheets. These tools, while useful for general portfolio management, often lack the sophistication needed for precise composite construction and GIPS compliance. Portfolio accounting systems might not handle the intricacies of tracking historical portfolio changes, while spreadsheets can become error prone as data grows, leading to inconsistencies and inaccuracies. These issues make it difficult to ensure reliable, transparent performance data. As firms grow, they often find that using these tools alone can hinder timely, accurate reporting, necessitating investment in more specialized composite management solutions.
Composite management systems offer robust solutions that streamline the entire process of composite construction and performance reporting. These systems automate composite creation by tracking portfolio changes, ensuring accurate inclusion criteria, and maintaining consistency across periods. They also calculate composite performance with precision, using pre-set methodologies to produce standardized results. With integrated reporting tools, these systems allow firms to generate performance reports with just a few clicks, complete with customizable layouts and visuals. Additionally, some composite management systems can securely store pre-approved disclosures, making it easy to incorporate them into reports without manual intervention. By centralizing these functions, composite management systems improve efficiency, reduce errors, and provide a compliant, auditable trail for performance reporting.
When a composite management system is integrated with a portfolio accounting system, many processes related to performance reporting and compliance can be automated, significantly enhancing efficiency and accuracy. Examples of what can be automated are highlighted below:
- Automated Composite Construction and Maintenance
Portfolio inclusion rules can be predefined, allowing portfolios to be automatically assigned to the appropriate composites based on their characteristics, investment strategy, or mandate. Changes in portfolio status or attributes trigger automatic re-evaluation, ensuring that portfolios enter or exit composites seamlessly as they meet or fail criteria. - Automated Performance Calculation
With data feeding in from the portfolio accounting system, the composite management system can perform time-weighted return calculations, linking returns across periods, and applying adjustments for fees, cash flows, and other portfolio-specific factors. This automation ensures consistent and compliant composite-level performance figures. - Automated Rebalancing and Compliance Checks
Compliance thresholds can be set to ensure that composites remain aligned with industry-accepted standards like the GIPS standards, with the system automatically flagging or adjusting composites if portfolios deviate from mandate or threshold criteria. This can include automatic alerts for minimum account size or asset class weighting adjustments. - Automated Performance Reporting
Composite management systems enable generation of standardized performance reports, which can include charts, tables, and disclosures. Reports can be set up to auto-update based on the latest data, making it easier to produce quarterly or annual reports. - Automated Disclosures and Documentation Management
In some systems, disclosures can be stored within the system and automatically included in relevant reports, ensuring compliance and consistency. These systems can also archive historical disclosures, portfolio changes, and compliance actions for audit purposes. - Audit Trails and Historical Data Management
Both systems combined can provide a seamless audit trail, tracking all changes to portfolios and composites over time. This automation helps firms maintain accurate records of composite history, making it easy to retrieve historical performance data and validate that all reporting remains compliant.
Integrating a composite management system with a portfolio accounting system thus allows firms to streamline reporting, enhance compliance, reduce manual data handling, and ensure that performance data is accurate, transparent, and delivered in a timely fashion.
