Research Management Systems: Key Considerations for Fixed Income Investment Managers

The following interview with Verity VP Ted Wright is a guest post from Alpha FMC. Please click here for a PDF version of this article or to learn more about Alpha FMC.

Research has always been a critical process for Fixed Income to ensure that investment professionals have a thorough understanding of an issuer’s, company’s, or instrument’s creditworthiness when considering risk vs. return. Compared to Equity, Fixed Income has a much larger investible universe, with complex instruments that vary in quality and liquidity. Therefore, it is important for asset managers to have a seamless workflow from credit research, to analyzing risk, to making portfolio management decisions.

Today we sat down with Ted Wright (VP Sales) from VerityRMS to discuss some of the trends and challenges facing our clients to understand some of the factors an investment manager should consider when thinking about a Research Management System (RMS).

Defining a Modern Research Management System

Alpha FMC: Many firms are probably familiar with the concept of a Research Management System (RMS), but how would you describe an RMS to those who may be unfamiliar?

Ted Wright, Verity: An RMS is a software platform that allows investment professionals to centralize and manage all information related to the research process. For credit investors this usually includes capturing internal credit ratings and outlooks, meeting notes, and other research, as well as integrating relevant market and portfolio data to incorporate into dashboards and company tearsheets, etc., so investors can make more informed decisions within their investment universe. Modern RMS platforms also support pre- and post-trade investment workflows and reporting.

Integrating RMS With Other Systems & Workflows

Alpha FMC: We often hear from clients who already have, or are considering, an RMS that they would like to see integration of their Portfolio & Order Management System (POMS) into their Research Management System (RMS) so Credit Analysts and Portfolio Managers can arrive at a holistic understanding of research and portfolio positioning using data from various sources, such as security master data, risk analytics, internal and external credit ratings, liquidity information, etc. Have you seen a similar trend from your customers?

Ted: We absolutely see the same thing from our Fixed Income customers. Analysts and PMs often want to author and consume their research in the context of what’s active in the portfolio, without having to switch apps and lose that context every time.

Alpha FMC: Got it. With that in mind, what should investors look for in an RMS to ensure integration of all the key data sources required for research?

Ted: It’s critical that an RMS keeps essential workflows intact so that the investment decision-making process is seamless from start to finish. At Verity, one of the ways we try to make this process as seamless as possible is by allowing our customers to bring their internal and third-party data into the platform — alongside their own research and documents. We’re data source agnostic in that way.

Each customer has slightly different requirements in terms of what they want to surface in the RMS. In some cases, customer requirements are straightforward; they simply want to see that Security X, issued by Company Y, is being held in Portfolio Z. In other cases, they want to bring in position inception date, size, and some sort of risk rating, if it’s being tracked.

Putting Diverse Data to Work

Alpha FMC: So, it’s important that an RMS can aggregate data from a variety of sources. Once the data is within the RMS, how can that data be used?

Ted: Yes, an RMS should be able to ingest any portfolio data, for example, so customers can integrate those position attributes in reports, dashboards, and research documents. This provides PMs and CIOs, as well as analysts, the context they need while carrying out portfolio monitoring workflows.

One way we’re seeing our fixed income customers integrate data into their workflows is by creating automated alerts based on pre-defined thresholds. For example, if something materially changes with one of their positions or one of the issuers they’re exposed to — whether security pricing, issuer creditworthiness, or otherwise – we can automate alerts and/or tasks within the system. With some automation, management team members can more easily stay on top of the latest and greatest as it pertains to active positions and avoid referencing multiple systems at once while losing precious time.

Challenges With Issuer Hierarchies

Alpha FMC: We often see our clients face challenges related to issuer hierarchy. For example, many Fixed Income instruments have a complex issuer hierarchy where multiple legal entities are beneath a parent entity. This can create challenges for monitoring exposure, limit reporting, ensuring diversification, etc. Given the importance of understanding the credit worthiness of issuers in Fixed Income, can challenges related to issuer hierarchy be solved by an RMS?

Ted: Yes. In fact, this is one of the must-have capabilities that RMS platforms have historically not gotten right, if at all, for fixed income customers. Managing security and issuer relationships is critical. Analysts and PMs need to be able to author and consume research at the appropriate issuer-level, wherever that entity sits in the greater corporate structure or issuer hierarchy. There are often cash waterfall dependencies, for example, which can have a meaningful impact on any given security’s price, risk, or both, as you work downstream in a corporate structure.

The way Verity approaches this is that we let Fixed Income customers customize the platform to fit their existing issuer hierarchy and security data. This is often a huge system integration benefit for clients. That way when an event occurs at one level of the hierarchy, teams can immediately see the downstream impact that change may have on other issuers, securities, or both. This can be automated based on preset relative ‘notching’ values between issuers within a given hierarchy. Teams can also assign ratings and outlooks in the same fashion, by issuer, respecting the related hierarchy.

Meeting Needs of Different Users & Teams

Alpha FMC: Given the large scope of the Fixed Income investment universe across geographies, industries, credit worthiness, and issuer, many of our clients look for solutions that offer a high degree of configuration and customization, so that users can tailor their views based on their role and the information that they are interested in seeing. For example, a Municipals Portfolio Manager would use an RMS differently than a Corporate Credit Analyst. Can an RMS be tailored to meet the needs of different user roles and investment teams?

Ted: Great question. Optimizing the platform for distinct roles and teams is a major consideration for just about every firm we speak with, particularly among the larger asset managers. Customer by customer, and even across teams within a given firm, being able to customize the data model and workflows is fundamental to setting up a research management system properly. Our approach here is much like our approach to workflows, make it as easy and scalable as possible. That applies to team or user permissions in the RMS, both in terms of what research content any one user can discover and consume, as well as how different dashboards and workflows are exposed in the front-end.

For example, a portfolio manager of Team A may want dashboards for X. She may value seeing certain data points there and have certain requirements of the analysts. The analysts on her team might have certain information or data required for any of their research, whether it be evaluating a new issuance or monitoring existing issuer exposures. Portfolio manager B might be different and so on.

Another thing we’ve seen come up over time is that certain users should have different permissions when it comes to actions that can be taken in the system, too — not just what they can or can’t view. That’s where custom Roles come into play, if there’s the need for more nuance beyond the baseline read-write, read-only, and Client admin designations. It’s not always important, but when utilized this capability can further finetune a client’s RMS use cases – again, particularly among the global asset managers we work with.

Takeaways for Investment Managers

Alpha FMC: Thank you, Ted. So, in summary, the key factors that an investment manager should look for in an RMS are:

1. Flexible Data Model. The ability to bring together diverse internal and third-party data sets using a flexible, source-agnostic data model, enabling seamless decision-making processes.

2. Issuer Hierarchy Support. The ability to organize data within an RMS to ensure it fits a firm’s existing hierarchy, such as the relationships between securities and issuers.

3. Team/User Configurability. The ability to tailor the user experience by configuring data sets, reports & dashboards, and permissions across distinct roles and teams.

Ted: Yes, I think that’s a great summary. Those items are crucial to ensure an RMS provides a comprehensive workflow for research and investment decision-making.

Alpha FMC: Great! This has been informative and hopefully has been helpful for any investment managers who are interested in the benefits of an RMS. We appreciate your insights.

If you would like to learn more about the benefits of a Research Management System, the different solutions available in the market, or Verity RMS, please contact Andrew Goumas (andrew.goumas@alphafmc.com) or Ted Wright (twright@verityplatform.com).