COMARCH ASSET MANAGEMENT. System for operating investment management process CAPITAL MARKETS. Banking, Insurance & Capital markets

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1 COMARCH ASSET MANAGEMENT System for operating investment management process CAPITAL MARKETS Banking, Insurance & Capital markets

2 Introduction The capital market is facing new challenges in the 21st century. Ongoing political and economic integration seen on the international arena, international organization membership, advocating globalization of financial markets, an increase in the volume of financial assets quoted on individual markets, the growing importance of global institutional investors, as well as the progressing level of complexity of systems responsible for the trading of financial instruments and conducting settlements, drive the constant growth of requirements that IT systems, responsible for servicing capital market institutions, must meet. On the one hand, modern tools at the disposal of commercial and mortgage banks, brokerage houses, investment and pension funds and specialist asset management companies, should provide the possibility of servicing a full catalogue of operations available on the market, on the other hand they should facilitate a greater extent analysis and processing of available information obtained by interfaces to external systems. The basic aim is no longer the streamlining of current operations, but the possession of a system that provides detailed information concerning the risk and effectiveness of investments. In order to meet the market expectations described above, Comarch has developed the Comarch Asset Management system, which is responsible for the comprehensive servicing of financial institutions engaged in running investment portfolios and asset management. 2

3 System s Target Group The Comarch Asset Management platform is addressed to financial market institutions specializing in asset management, both on their own and when commissioned by customers. The broad target group of the Comarch Asset Management system results from the fact that the system enables processing both the typical back-office operations connected with investment portfolio service (e.g. registration of the company s and customer s orders, conducting operations connected with assets included in investment portfolios, conducting settlements), and typical front-office operations complemented with analytical functionality (e.g. order and transaction service, order generators, portfolio structure analysis, liquidity analysis, portfolio valuation, control of investment limits, evaluation of management effectiveness). It is also worth mentioning that the system is equipped with a functionality which services both large volumes of small investment portfolios (e.g. order generators, wholesale service of several investment portfolios, executing simultaneous functions for a group of portfolios), as well as being indispensable for the servicing of very large investment portfolios (e.g. a complex valuation mechanism or an investment limit control mechanism). The Comarch Asset Management platform is a comprehensive tool that automates the process of asset management, fund and portfolio bookkeeping, market risk management and performance measurement. The set of solutions included in the platform is addressed to: investment funds insurance companies pension funds institutional asset managers bank depositors private banking wealth managers...and other institutions involved in the business of investment portfolio management. 3

4 Application structure Comarch Asset Management consists of several integrated modules which can be grouped into five main areas. Portfolio Management this area includes a broad functionality dedicated to asset managers and should be considered as a comprehensive tool that automates the process of asset management, implementation of investment decisions (incl. simulations, generators), registration of orders and transaction settlements, pre- and post-trade compliance, investment limit queries and investigations, portfolio modeling and rebalancing, fee calculation, providing current information on assets under management, cash-flow forecast and integration with market data providers and counterparties. Due to the advanced functionality of transaction recording and performance management, the system covers MiFID requirements and reporting in accordance with GIPS and AIMR- PPS recommendations. Risk Management this area enables complete supervision of the market risk management process. The user has access to the functionality that allows for active risk assessment of the managed portfolios using self-created analyses and verification of the correctness of the used solutions and management strategies. While supporting a wide range of financial instruments, the system uses complex derivative market products which are able to hedge business risk areas. The application allows managers to make more effective investment decisions, allows issuers to increase their product range and entrepreneurs to focus on their core business, which translates into an increase in the competitiveness of the institution on the market. Performance Measurement and Attribution this area enables the user to assess the strengths and weaknesses of the chosen investment strategy and thus make appropriate investment decisions that maximize profitability and minimize the portfolio risk. The ability to make more effective investment decisions translates into an increase in the profitability of the managed portfolios, and thereby increases the competitiveness of the institution. Fund Valuation this area mainly covers portfolio and fund bookkeeping, valuation, payments and settlements. The system processes financial and quantitative bookkeeping, stores all transactions and payment orders, enables appropriate disposal processes of blocks of instruments during a sale, handles settlements and deliveries, calculates commissions and eventually valuates and generates reports. It is possible to define an algorithm for market selection and select quotation methods for pricing purposes. Due to the advanced functionality, which manages investment limits, the system enables the creation of a company investment policy under the applicable law and the adaption of company investment policy to both internal and regulatory needs. CUBE Analysis Tool an independent module of the Comarch Asset Management platform. It is dedicated to analysis and ad-hoc report creation. The CUBE Analysis Tool is designed for easy use by anyone, not only by skilled power users such as IT developers and programmers with advanced technical skills. CUBE facilitates reporting on portfolio structure and investments, transaction history and valuation. Drag & drop and slice & dice utilities enable the efficient and user-friendly creation of ad-hoc reports and analyses. The CUBE Analysis Tool allows the user to create both flat and matrix analyses. 4

5 Functionality description The functional scope of the Comarch Asset Management platform supports all the operational areas of insurance, investment and pension funds, asset management companies and depositary banks. The system competence map covers areas such as online operations, support of investment processes, valuation and bookkeeping, as well as risk and performance measurement. The Comarch Asset Management platform is a modular system, providing customers with solutions tailored specifically to their needs. Online operations It is possible to efficiently monitor and manage the current composition of investment portfolios due to the functionality of operation desktops with multiple data sheets. Desktops present the composition and value of portfolios allowing for operations conducted during the day supplied by current market quotations. Each user can parameterize their own desktops, which are composed of sheets presenting portfolios, in various sections. These consider the type of instruments, based on a set of columns, filters and parameters. The most valuable desktop functionalities are comparisons to various models and simulations which allow asset managers to create their own list of orders and share it with other users to create a common investment strategy. From the desktop level it is possible to view operational history on a given portfolio position and to perform immediate orders and transactions using functions of the context menu. Desktops also provide a view of newly prepared or placed orders and information on their progress. Model portfolios and benchmarks Model portfolios are constructed on the basis of quantitative or percentage instrument composition, duration segments or other model portfolios. Besides indicating the target structure of investment portfolios, the principal deployment of model portfolios, consists of the mapping of stock exchange indexes and benchmarks. Construction of benchmarks can be based on indexes, instrument yield, model performance, inflation or a combination of other benchmarks. Order management The process of order creation and settlement is composed of several steps, of which the following should be mentioned: preparing an order proposal, control of investment limits and coverage of instruments and financial means, transaction list control, registration of orders, combining orders, initial realization of orders, allocation of realization on portfolios and final authorization of order execution. Orders can be created individually or by using a mechanism for automatic order generation, based on a comparison of the portfolio s content with the model portfolio, declared participation of an instrument, declared sum or other directions of the manager and many other algorithms implemented in the system. Orders can be realized individually or by using broker interfaces. Exceeded limits are subject to additional authorization. Orders, which need authorization, may be managed by other users with appropriate privileges. According to MiFID requirements, the system provides complete information about the transaction path, including a justification of the investment decision which allows a department of internal control to monitor trade transparency and portfolio investment strategy compliance. Investment limits Both internal investment limits (strategic, tactical) and limits resulting from legal regulations concerning the managing institution, and its customers, are defined in the system. The range, characteristics and instrument valuation method, included in the limit as well as the control level of the limit (total for all portfolios, groups or investment strategy) are specified for each limit. Limits can be controlled for branches, issuers, banks, issues, contractors and dealers. The operations update range is defined for limits controlled online (pre-trade compliance). A restriction list for instruments or ratings can be defined for each portfolio. Financial instruments serviced by the system Equities, bonds, money bills, treasury bills, deposit certificates, investment certificates, participation units, commercial papers, letters of deposit, rights on equities, subscription rights, shares, futures and forward contracts, FX Swaps, FX Options, FRA, IRS, CIRS, warrants, currencies, commodities. 5

6 Performance and Risk Management Performance measurement Performance is calculated based on the gross and net value of the portfolio s clearance unit. Besides the absolute rate of return, the system calculates relative rates in respect to benchmarks and performance indexes corrected by risk (Time Weighted Return, Money Weighted Return, Jensen, Treynor, Sharpe, Sortino, Tracking Error, Information Ratio). Performance is set at the level of a particular instrument, sector, region, currency or portfolio and is aggregated for groups and investment strategies. Global Investment Performance Standards The valuation of portfolios and calculation of management performance is in accordance with GIPS and AIMR-PPS recommendations. Performance calculation takes into account the period when the portfolio belongs to a composite and the minimum required level of assets as well as significant cash-flows. Performance attribution This functionality enables an active performance assessment of the impact of individual assets on the overall outcome of the investment portfolio. It helps portfolio managers determine the investment features which contribute to a better or worse performance of the portfolio than the benchmark. Among possible attribution models are Brinson-Hood-Beebower, which calculates allocation, selection and interaction effects for equities and additional duration effects for fixed-income instruments (presentation by duration segments). Derivatives and structured products This functionality gives investors the opportunity to use financial instruments which could adequately hedge risky areas of their activity. The system allows calculating the current value of instruments (futures and forward contracts, FX Swaps, FX Options, FRA, IRS, CIRS) in the portfolio, as well as to estimate the actual price of the instrument prior to its acquisition on the market or directly from the seller. It gives the investor grounds for price negotiations with the institution offering the financial product. Risk ratios and statistics This functionality enables active risk assessment of investment portfolios by identifying risk factors and gives a clear and quick view of the current portfolio situation. This can be done at different levels of aggregation, according to accepted standards of presentation. The system enables calculating risk ratios (Value at Risk), sensitivity ratios (duration, convexity, PVBP, beta, etc.) and statistical indexes (volatility, correlation, etc.). 'What if' scenario analysis This feature enables active assessment of the impact of the portfolio position s potential changes with regards to its value or calculated ratios. It increases the efficiency of portfolio management by maximizing returns and minimizing investment risk. It creates analysis based on quantity, shares or the instruments value simulation or designed virtual portfolios. The functionality also provides the option to alter market data according to historical scenarios, considering large stock market fluctuations (stress testing) or user-initiated changes (e.g. yield curve shifts). Backtesting This functionality helps to verify the correctness of the risk models based on historical data (backtesting), which minimizes the consequences of incorrect model usage. The available backtesting methods are a simple P/L vs VaR comparison or more advanced statistical tests (Kupiec, Berkowitz). Portfolio optimization This functionality supports investment decisions with suggestions to buy or sell indicated instruments. These suggestions are the result of matching the portfolio to the structure specified by user optimization criteria, such as risk minimizing (e.g. VaR, Variance, Tracking Error) or effectiveness maximizing (e.g. Sharpe, rate of return, information ratio) according to Markowitz optimization theory. 6

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8 Valuation and Fees Valuation The value of instruments can be set on the basis of purchase value, discount and premium amortization, market valuation, yield curve or an effective interest rate. The system calculates the value of interest on cash, deposits and instruments. The value of the portfolio unit is calculated on this basis. A separate record of the number of gross and net units, of the portfolio, is run in the system. An important element of the valuation process is the accrual and settlement of management fees and other costs deducted from portfolio assets. Calculation of yield curves includes spot and swap rates, theoretical curves and forward curves. Fees and commissions For means of record and valuation control, tables of management, transaction and administration fees are defined on the basis of agreements with customers. Basic types of management fees are fees calculated from portfolio value, from results above the benchmark and fixed lump sum fees. Additionally, the method for the accrual and charging of fees is defined together with methods of remission and deferment of fees. Transaction fees include broker s fees calculated by value or the amount of instruments within the transaction with allowance for brackets, lower and upper levels, types of instrument and the market and currency of the operation. The definition of transaction fees also includes fees for settlement institutions. Administration fees concern the costs of running accounts, storing and valuation of assets. Parallel valuations The Comarch Asset Management platform allows securities pricing using three different methods for one and the same date. One of the methods may be customized to local law, the other can be used for capital group reporting purposes and the final one may be IFRS. Values which are the result of different valuations are maintained as the outcome of the calculations and are used for presenting purposes. 8

9 Operations and Bookkeeping Primary and secondary market Operations on the primary market include registration and settlement of individual and collective offers for subscription and bids. In the case of bids, the service of rolling and enrolments is offered for new issues using subscription rights and advance payments. Registration of enrolments for purchase and exchange bids takes into consideration the assumed yield and duration of particular offers and weighted yield of collective offers. One of the functionalities of the secondary market, besides the registration of classic transactions on the interbank market, is the recording of opening, closing and withdrawals from BSB and SBB transactions and initial purchase agreements. The transaction authorization function enables the modification of dispositions in such a way that the selected blocks of papers can be sold regardless of the defined method of selling instruments. Operations and rights on securities This functionality covers operations most frequently conducted on the market, e.g. splits, assimilations, conversions, redemptions, interest payments, as well as granting and terminating subscription rights and payment of dividends in cash, equities or participation units. Moreover, it is possible to conduct non-standard conversions of instruments in fractional amounts with the equivalent for non-allocated instruments. Financial operations It is possible to register external payments into and outside of the portfolio, realizing them independently of the manager. In addition, the system provides mechanisms of automatic settlement on the basis of transactions and operations conducted on portfolios. The module includes individual and collective registration of bank deposits, service of loans and credit lines. Securities disposal methods When an asset sale is made the packs are dispersed according to the method defined for a fund. The following instrument disposal methods are available: HIFO, FIFO, LIFO. Records and bookkeeping Operations are registered based on entries in balance and non-balance accounts within a dedicated plan of synthetic and analytic accounts. Each disposition has its own set of bookkeeping schemes. A register of all dispositions (including correction entries) is conducted by the system, with an indication of time and the registering person stating compliance with IAS and MiFID requirements. 9

10 Reports and Analyses The reports module The Comarch Asset Management system provides a set of professional reports, which enable the presenting and analysis of investment management results using various methods. All information from the reports may be easily exported to MS Excel or to PDF files. Using the report scheduler, the user can set the predefined report launching rules in advance. This significantly reduces operational costs. CUBE Analysis Tool Apart from the predefined reports available in Comarch Asset Management system, Comarch provides the CUBE Analysis Tool as an application that allows you to perform ad-hoc crossanalysis on the basis of widely configurable views, tables and charts using data from various sources. Key features: data cubes keep certain groups of data loaded from external systems in accordance with a user-defined frequency, at which the analysis is created configurable analyses enable the configuration of tables and charts presenting the available information from the data cubes, in terms of adding and deleting predefined dimensions and measures, creating filters and recording the set up tables in order to accelerate their rebuilding in the future openness of the system this proprietary database application allows you to supply data from various sources according to previously agreed specifications. 10

11 Integration Data Exchange with other systems The Comarch Asset Management solution has been designed in such a way as to enable flexible data exchange with several external systems. It facilitates businesses with automating operations, aids the work of users and, in effect, increases total effectiveness by means of straight-through processing. Particularly crucial interfaces, from the Comarch Asset Management system s viewpoint, include the following: interfaces to online market information systems that enable the constant import and processing of information streams containing current quotes and transactions interfaces to information systems through which stored catalogue data is updated (e.g. information about financial instruments, interest, ratings and industries) interfaces to transaction systems used by brokers and other entities that organize the trading of financial instruments the export of orders, as well as the import of transactions concluded on the accounts of investment portfolios, is possible interface to the general ledger: the turnover on Comarch Asset Management accounts is mapped to general ledger accounts or exported to operations connected with the investment process (e.g. trades, corporate actions, financial operations, valuation) interfaces to accounting and clearance systems responsible for operating interfaces to popular office applications (e.g. spreadsheets, word processors) that facilitate the export of data from investment portfolios maintained by the Comarch Asset Management system to these applications. 11

12 Poland Comarch Headquarter Al. Jana Pawła II 39a Kraków fax: phone: Austria Comarch Solutions GmbH Nußdorfer Lände 23 A-1190 Wien fax: finanzen@comarch.at phone: Germany Comarch AG Lyoner Str. 20, Frankfurt/Main fax: info@comarch.de phone: Finland Comarch Technopolis Business Park Innopoli II Tekniikantie Espoo nordic@comarch.com phone: Switzerland Comarch Swiss AG Bahnhofstrasse Buchs fax: finance@comarch.ch phone: Belgium Comarch AG Avenue Louise 65 B-1050 Brussels fax: benelux@comarch.com phone: France Comarch Software SARL 19 Avenue LeCorbusier Lille fax: lille@comarch.com phone: Russia Comarch OOO 4th Lesnoy Pereulok office room: 438, Moscow finance@comarch.ru phone: Ukraine LLC ComArch 18/7 Kutuzova Str Kiev fax: finance@comarch.ru phone: Comarch is a leading Central European IT business solutions provider specializing in forging business relationships that maximize customer profitability while optimizing business and operational processes. Comarch s primary advantage lies in the vast domain of knowledge accumulated in and applied to our software products. These products incorporate highly sophisticated IT solutions for businesses in all vertical sectors. Comarch has a multinational network of offices employing over 3300 highly-experienced IT specialists in Europe, the Middle East and the Americas. Comarch Spółka Akcyjna with its registered seat in Kraków at Aleja Jana Pawła II 39A, entered in the National Court Register kept by the District Court for Kraków-Śródmieście in Kraków, the 11th Commercial Division of the National Court Register under no. KRS The share capital amounts to ,00 zł. The share capital was fully paid, NIP Copyright Comarch All Rights Reserved. No part of this document may be reproduced in any form without the prior written consent of Comarch. Comarch reserves the right to revise this document and to make changes in the content from time to time without notice. Comarch may make improvements and/or changes to the product(s) and/or programs described in this document any time. The trademarks and service marks of Comarch are the exclusive property of Comarch, and may not be used without permission. All other marks are the property of their respective owners. EN 2011