A portfolio manager with just a few positions and infrequent modifications may be satisfied with Excel and a fund administrator's reporting. That may work for a fund with $25-$100 million AUM (assets under management), maybe. A representative portfolio may have 10 price-weighted holdings.

Funds with less than $1 billion are likely in need of a portfolio management system that can be used by portfolio managers for strategy reporting and portfolio operations. Portfolio operations include regularly used functions such as position adjustment and portfolio rebalancing. Those operations facilitate shadow accounting to maintain portfolio objectives. There's likely more asset diversification with an increase in capital as risk measures are put in place.

More than $1 billion assets under management and it becomes a fiduciary responsibility to use best practices in managing the finances of investors' capital. That means the portfolio managers and investors are looking for a system that has functionality available at each stage of the workflow to facilitate tactical and if possible, strategic operations.

Operations include:

1. Asset coverage (i.e., corporate and government bonds, common stock, futures, options, crypto, etc.)

2. Network availability (i.e., third-party market data, brokers, algorithms)

3. Function compatibility with networked providers (e.g., order routing protocols for algorithmic trading, asset performance analytics provider, transaction cost analysis file format)

4. Market Data (i.e., real-time, current, historical)

5. Reference Data (i.e., industry group, ESG protocols, compliance measures such as global trade restrictions)

6. Firm Structure (i.e., firm, desk, book, strategy)

7. Reporting (i.e., performance attribution, trade concentration, global penetration, industry comparison, strategy profit/loss)

8. Partnership Accounting (i.e., private equity investor-structured segregation)

9. Managed Services (i.e., trade settlement, fund administrator liaison)

What are the significant parts of the workflow and where is there potential for a breakdown in the process? The results of this questioning will create a list of features to filter vendor software offerings.

1. Portfolio rebalancing tools for periodic (i.e., monthly, quarterly, yearly) modifications to the entire portfolio due to changes in fund directives, restricted activities, capital events, or other market conditions.

• One system may provide a function to use proxy instruments (when restrictions are encountered) and another does not.

• One may allow rebalancing of the portfolio inline with selected index values.

• There may be a user-friendly interface that simplifies the fine-tuning of portfolio valuation calculations (e.g., value in AUD vs. USD, index selection).

2. Position adjustment tools for interim modifications to positions due to inflows, outflows, or position value changes.

• One system may provide a function to increase by a specific value while another only permits percentage modifications.

• One system may provide a spreadsheet-style parameter edit to trigger grid-based calculations.

3. Pricing for portfolio assets is important since some assets may be liquid on selected platforms, which would require pricing of the asset from that platform and the availability of automation of that pricing from the source to the investment management platform.

• Platforms will use different providers of basic market data (Reuters, FactSet, CapitalIQ, LSEG/Refinitiv, Bloomberg, etc.) based on the cost value to the total addressable market.

• A technology vendor may use a data provider that provides a limited set that may not be suitable for all customers' use. The assets and/or exchange and execution venue data provided by the technology vendor supplier may not be the assets or exchanges the customer needs to price their portfolio.

• The technology vendor can (charges apply) program and integrate additional data sources as requested.

4. Reference Data for compliance and research systems require current and historical information to populate databases.

• For organization of categories in strategies, should be received from consistent sources to assure compatibility with valuation methods.

• Global trade restrictions that may impact the ability to invest in a specific country.

5. Reporting functions in a robust software platform facilitate decision-making through clear and concise representations of the portfolio.

• Selective date period comparisons (e.g., year-over-year, month-over-month, custom date-over-custom date)

• Scheduled run and export features (e.g., generate 7a PDF sent to the portfolio manager and others in the morning meeting)

• Graphical display with user-controlled settings (e.g., app or web version of a report generator with slider controls to dynamically affect a report chart or graph)

• Pivot table or in-grid value selection for advanced operations

6. Compliance rules and settings used to restrict buying or selling an asset which is against portfolio investment strategy as dictated by the investors. Regulators may impose restrictions on select groups of buy-side firms based on assets under management or investment 

• 15% maximum share in consumer sector companies

• 25% minimum in companies domiciled in the USA

• Stock price change results in exceeding the maximum valuation share by more than 20%

• Book restrictions (e.g., Fund A can, Fund B Cannot, Fund C can only if Fund B cannot)

7. Routing to brokers, execution venues, analytics vendors, or others requiring electronic connectivity

• FIX vendor (e.g., NYFIX network to route orders to a broker using a secure industry standard)

• API via web for trade analytics (e.g., TCA from OneTick)

• Indications Of Interest (IOI) network participation

8. Support for end-of-month activities such as receiving files from fund administrators which are used to balance the shadow accounting provided by a portfolio management system.

• The fiduciary responsibility generally lays with the fund administrator, however, the day-to-day activities are driven by information presented by the investment management platform.

By considering these factors, a portfolio manager can select a system that best meets their specific needs and requirements.