IBOR: Fad or Trend?
The technology industry, in particular, is prone to massive bursts of hype surrounding new technologies and identifying what’s a fad and what’s a genuine trend can be challenging. There are wonderful examples of off-target predictions: a personal favourite being Steve Ballmer’s (CEO, Microsoft) prediction in 2007 that “There’s no chance that the iPhone is going to get any significant market share”.
Over the last year and, in particular, the last six months we have seen crystallisation around the term IBOR in the investment industry. IBOR stands for Investment Book of Record. An IBOR is a continuously updated positions master providing a comprehensive, current investment view reflecting the entire activity of the firm across geographic region and asset class. Yet being able to have an accurate and up-to date-view of one’s stock and cash positions with forward cash forecasting is not exactly new – so why is it being talked about so much now?
The growth in use of the term IBOR seems to be as a result of a number of factors. Firstly, we have seen a move to intraday support being the norm: generally it seems that reporting cycles are becoming more compressed – quarterly has become monthly, monthly weekly , weekly daily and overnight intraday. In the survey1 we recently commissioned from Aite Group we identified that over 50% of those interviewed were identifying a need for intraday or real-time information.
Secondly, this move to intraday is challenging existing systems architectures and is not readily assimilated into their underlying principles. A key example of this is that most organisations still have their accounting system as their chief source of position data and these are generally end-of-day, batch-based retrospective systems, not designed to provide intraday data aggregated positions. As a North American participant in our survey observed, “On investment book of record we have definitely seen a push for support to be as real-time as possible, but the accounting-centric view of this data is batch-based—any change will therefore require a mental paradigm shift.”
Underpinning all of this is the need to manage ever more complex financial instruments and the growing need for stronger analytics support leading to a position where the basic business of running a successful investment firm has become so much more complicated than it was in previous years.
Another factor is aggregation – there is a requirement to aggregate data across portfolios or funds notwithstanding the fact that they might be managed on different systems or platforms. The outsourcing debate seems also to play into the IBOR camp – many organisations that have outsourced to a single or multiple providers view an IBOR as an ‘insulation layer’ allowing them to change outsourcers more easily, preventing lock-in to a single provider.
So is IBOR real? We are certainly seeing more than just talk on this issue and are involved with a number of firms who have specific IBOR projects. What is probably still in doubt is how far firms will take it. Some are looking at being able to know positions according to trade status (order, confirmed, settled,) and therefore physically/estimated cash positions. These are not trivial projects but the finding in our survey that 42% of asset managers named ”data latency” as a key challenge for investment data management projects suggests that many firms are aiming for this.
Perhaps some organisations are taking it further still – not just looking at intraday and forward-looking cash positions but wanting to be able to build a complete point-in-time system so that they can retrospectively create a completely accurate historical position at an exact time to understand the decision-making and thought processes at the time. So yes, IBOR is a trend not a fad but we believe it will be implemented in many different guises.