CloudAttribution is a company formed in May 2012 with the aim of providing a new multi-asset performance and attribution system. Our aim is on making life easier for performance analysts through better data handling for performance and a more straight forward set of attribution models.
The founders of the company all worked together at UBS Global Asset Management prior to forming CloudAttribution. There they developed a fixed income attribution system which had a regular user group of over 100 users across 10 offices. It was successful because we focused relentlessly on the quality of the output. Checks at the calculation stage aimed to highlight the largest and most regularly occurring problems. Our web front end delivered all of the output data directly to portfolio managers and client liason in an easy to use and interactive form. The transparency that this approach brought to the numbers also formed a big part of the reason for success.
Ordinarily producing security level performance reports would require 50 pages of detailed output. Interactivity reduces this to a couple of screens which can be quickly investigated by digging down from the top level towards individual security contributions. Producing a cloud based system allows us to provide this software to any sized organization and to continue to develop it as our clients need.
Focus on getting the performance calculation right
We can take your input data in whatever form you can provide it, we then build a performance calculation that fits your data. Our aim is to make life simple for you: the calculation of performance is broadly the same at every fund manager, but that isn’t the same as saying that it is identical! Handling the differences on our side means that we can model every idiosyncrasy; it is much faster too. If the performance calculation is correct then that makes it much easier to focus on the quality of the input data. By working with you on the performance, we also identify where the most common data errors are occurring. These can then be corrected and also identified on an ongoing basis: we have found that the quality of the inputs quickly goes up and users have a lot of confidence in the performance output.
Minimizing the data requirement
Our attribution models work with the performance calculation. There is no additional data needed – if the accounting system knows how to price a derivative then so do we, there is no need to load terms and conditions. This approach means that if the performance is correct then so is the attribution. The attribution models themselves, particularly fixed income, are kept straight forward. Although we do require a duration and spread duration for this model, we are far less dependent upon this data than other models would be. Users comment on how easy it is to use the system, how quick it is and how easy it is to find what they need.
Working with you
Our system is cloud based, that means that there is no installation and therefore no box that has to be laboriously updated at a later date. Instead we work with you to provide continuous updates and improvements. We aim to quickly capture and implement your feedback and ideas. Our integrated development environment means that we can show you before and after reports before the latest changes go live, ensuring no nasty surprises. Working with you also means offering help when you have problems or need advice on how to handle a performance issue. Our aim is to be your knowledgeable and reliable partner.
Fixed Income and Multi-Asset
Our model has been developed over time with a lot of reference to portfolio managers. A full write up will soon be available in the Journal of Portfolio Measurement (Winter 2014). We attribute performance at the security level, so in that sense our model is bottom up. But the attribution itself is essentially top down. With a lot of flexibility for sector design, we have found that it has a very wide applicability. Within duration we calculate the overall effect from the portfolio active duration. We then attribute each market based on its weighted duration deviation(WDD). Finally we capture where the exposures were on each market curve. Together these give good feedback on whether the overall rates positioning was correct.
Each portfolio manager looks at their portfolio differently. A Corporate manager may focus on the subordination within financials. A Sovereign manager may worry more about their Spanish exposures. By keeping the sector definitions completely flexible we give users the opportunity to attribute portfolios in the way that they think about them. The attribution of sector management follows the same approach as for duration. We look at the overall active spread duration of the portfolio, the active spread duration of each sector and then the security specific element is analogous to curve. This symmetry makes the model very approachable and easy to understand. We also have a yield management term to complete the main elements of the model.
Unlike with equities, derivatives are part of the bread and butter of fixed income and multi-asset. Our performance based approach makes it simple to handle them. As long as the accounting system recognizes them and can price them then we can handle them too. No additional terms and conditions data is required.
Holdings and transactions, enhancing quality
Using holdings and transactions is much more necessary in fixed income. Using the same approach in equities and multi-asset allows us to exactly replicate the accounting performance of the fund. This gives a much higher degree of confidence that the numbers users see are correct. It also gives feedback to the Operations team. After calculating performance we have automatic checks of the numbers, looking for inconsistencies between holdings and transactions. Where these occur it usually indicates booking problems which can be fed back for correction in the source system. We have found that this quickly improves the quality of the source data as processes in the Operations team change.
Investing outside the benchmark
In fixed income it is common to buy assets that are not in the benchmark. Sovereign funds may buy credit, single country funds may buy international bonds. In equities this can also happen with investments into small cap and emerging equities, for multi-asset there may be many ex-benchmark investments. Usually these would be captured as pure asset allocation decisions. However, if the exposure is into an active fund it may be desirable to split the return into allocation and selection. We include the ability to add alternative benchmarks that particular assets or sectors can be set against to allow that split.