Do you even need an Investment Book of Record?
The problems that an IBOR is trying to solve are well understood, but there are many shortcomings with the approach. The best analogy that we’ve come across came from a recent conversation with the CDO at a global investment firm. He compared implementing an IBOR with building a self-driving car. For a vehicle to be truly autonomous you need to have accurate, real-time and well understood information from a diverse range of different internal and external sensors. Without this information the self-driving car wouldn’t be able to move at all. The same is true for an investment manager, without good information from disparate internal and external “sensors” it is hard to run an investment management operation with confidence. True autonomous vehicles are a long way off. Does the same apply to effective IBOR implementations?
The German mathematician Carl Gustav Jacob Jacobi is well known (in certain circles) for his fundamental contributions to number theory and elliptic functions. One of his maxims was: ‘man muss immer umkehren’ (translated in meaning as: ‘Invert, always invert’). Jacobi understood that many hard problems are best solved when they are addressed backwards, coming at the problem from the opposite starting point.
Let’s apply inversion to IBORs (and indeed all the other BORs out there: IBOR, ABOR, MBOR, TBOR, PBOR etc.) An investment book of record is now an industry truism, an accepted solution to well-known data management problems in the buy-side. But what if there was no need whatsoever for an IBOR, or the numerous other books of records? Approaching this problem from the other side, let’s ask ourselves: what if there was just one book of record for the whole investment industry? A 1BOR as opposed to an IBOR. What would this mythical beast, this single book of record look like? What characteristics would it have?
The 1BOR would serve two functions. It would have to act as a Single Source of Truth (SSoT) for all industry participants. A single source of truth is not a single version of truth. Instead, it’s a single (virtual) location where data can be queried to derive Multiple Versions of Truth (MVoT). Multiple Versions of Truth are not alternative acts, but the same underlying data presented in different contexts. Let’s drill down into these two functions…
Single Source of Truth
The SSoT would be the only instance of investment data for a firm, updated in-situ by all internal and external participants, suppliers, counterparties and agencies. The data would be updated in real-time e.g. as market data is delivered, trades are executed and confirmed, cash positions are updated (no more batches!) The SSoT stores data bi-temporally (so that you can report on an “as was” as well as an “as now” basis) and is built to seamlessly track the data provenance (where it came from) and data lineage (what’s been done to it).
Multiple Versions of Truth
Multiple versions of the truth can then be derived from the SSoT depending on the needs of the consumer. For example, investors (and regulators) may value accuracy over timeliness, whereas the front office values timeliness over absolute accuracy at the start of the trading day. Different stakeholders might want their NAVs calculated using different market data sources and specify that risk be calculated using different methodologies. To meet these diverse views, the 1BOR has to be able to build these multiple versions of the truth (the information) from the SSoT (the data). And to do so in a way that is auditable i.e. so that it is always possible to evidence how that version of the truth was built, and to recreate it.
So let’s finally return to an inverted version of the original question. What’s the true value of the 1BOR (as opposed to an IBOR)? The 1BOR enables the asset manager to move with confidence, in the right direction, and without hitting things!
Please contact us if you would like to find out more about how we can help you progress towards a true 1BOR.
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