As many of our clients have learned the hard way, attempting to build and maintain complex blended (i.e. composite) benchmarks is often more difficult than it sounds. Take this use case as an example:
The RIMES client, a large asset manager – was onboarding several new mandates and would be required to measure the investment performance for each of those mandates. The Asset Owner specified that the funds were to be managed against a composite of four indices – two equities components and two fixed income components. Additionally, one of the fixed income components was itself a blend of four other fixed income indices. If the asset manager was to successfully manage this portfolio against blended benchmarks, it would have to be done without the slightest error – lest they tarnish their reputation and diminish the chance at winning continued new mandates.
The firm’s data management team set out to scope the project, to ensure the Performance Measurement team’s requirements could be met without a hitch. First, there would be checks with each relevant data provider to ensure they were correctly licensed to blend combinations of indices from those providers. Next, there was determining how the data would be received and how the blends would be created – in-house system? Excel spreadsheets? Then the rebalancing frequency, weighting/allocation scheme and calculation routines needed to be considered. Finally, any data errors would have to be detected and remediated daily.
After some initial research it became clear they were faced with several challenges. Their front office system, working with constituent level data, could only apply the fixed weights daily to measure performance, whilst their performance team were using a top down approach, storing and using daily floating weights. This meant there would be calculation discrepancies between the two teams. In addition, there were many questions that they were finding difficult to answer, such as which weights or returns to use, whether to use hedged or unhedged returns or how to manage holidays when one or more of the indices in the blend will not be published.
It became clear to the team improvements to the entire data management operation were essential to ensuring a successful in-house implementation. To do that, however, would have required significant and ongoing development, including big investments in technology and personnel with the specialist skills and knowledge.
And so the data management and performance measurement teams turned to RIMES.
All Systems Go
RIMES has longstanding relationships with well over 300 global data and index providers, which meant the speed of licensing was a breeze for the client. Further, RIMES already had the required indices in-house, and our proprietary set of blending tools – paired with our team’s expertise in creating and maintaining blends ensured we could efficiently and successfully meet the client’s specifications, including providing the daily floating rate returns to ensure consistent calculations between front and middle office.
In this case, RIMES assumed the complete sourcing, building, maintenance and delivery of the blended benchmarks for the client. To achieve this, we customized the client’s data output according to specifications, and leveraged the core capabilities of our Managed Data Services. The client retained full transparency and control over the process with access to a full inventory of the blends we were delivering, including underlying components and weights. As part of our ongoing commitment to keep improving the service, our client now also has the option to self-manage weight allocations, fully audited.
As a result of their collaboration with RIMES, the data management team on the client side can ensure the firm’s performance measurement team benefits from highly accurate blended benchmarks – the result of expertly validated and remediated data. Performance attribution is accurate and precise; the Asset Owner sees timely performance results daily; data management resources can be deployed to higher value projects; and the asset manager can now confidently pitch for business from other funds with complex benchmarks.
Read our factsheet: “Blended Benchmarks: Simplifying the management of blended benchmarks” here.
RIMES Managed Data Services is a proven data operating platform that helps firms of all sizes and in all regions align their data consumption closely with business needs. Please contact us to learn more.
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