Assessing the Computing Challenge
Portfolio analytics is a computationally complex, non-linear problem, requiring the analysis of millions of possibilities that lie in the solution set. It's necessary to simulate a vast number of different portfolio compositions to find the one that maximizes yield or minimizes using exhaustive search methods.
In practice, it is necessary to simulate different weight compositions (e.g., asset allocations), individual assets, asset price movements and holding periods. Increasing the number of parameters significantly increases the simulation time, and running several customer scenarios can take hours or even days on a single computer. A portfolio analysis, based on a customer's yield and risk targets, must compare millions of possible outcomes to determine an optimal solution:
- Weight compositions (thousands of combinations)
- Assets (hundreds in more complex portfolios)
- Asset price paths (millions)
- Holding periods (several)
Delivering the Solution
In order to shorten the overall simulation time, Protégésoft developed tools that take advantage of high-performance computing (HPC) resources. We developed the Financial Portfolio Builder* (FPB), which features a unique dynamic portfolio rebalancing and monitoring solution. This tool offers FSIs a cost-effective alternative to their outdated legacy system and processes, which often include Microsoft* Excel spreadsheets.
Summary and Metrics
The Protégésoft FPB
is helping FSIs lower costs, address new market segments and achieve higher returns
for customers.
1) Improving Workload
Productivity
FPB is creating cost
and time savings for wealth managers to service customer accounts, as shown in Table
1.
|
|
Legacy
systems
|
Itanium®-based system
|
|
Number of accounts per hour
|
2
|
58,000
|
|
Effort to rebalance and print 100 dealing tickets
|
9 person days
|
Straight through processing
(STP)
|
|
Training required
|
6 months
|
0.5 days
|
|
Main Points
|
Data Integrity Issues, portfolios weren’t optimized
|
No Human intervention needed, complete automation of portfolio
optimization
|
Table 1. Efficiency
Scenarios
Along with providing
efficiency gains, FPB eliminates data integrity issues associated with human intervention
and ensures portfolios are truly optimized.
2) Addressing New Markets
With the savings achieved
through workload productivity improvements (described in #1), FSIs can lower the
cost to service customer accounts and create new opportunities to serve previously
unprofitable customers.
For example, FPB-related
productivity improvements allow 2,500 clients with SG$10,000 (Singapore
dollars) to generate the same revenue as 100 clients with SG$500,000 investment
portfolios.
Case 1:
·
Mass affluent individuals
·
Portfolios start at SG$10,000
·
Fees @ 3.0% = SG$300
·
Revenue 2,500 clients = SG$750,000
Case 2:
·
High net worth individuals
·
Portfolios start at SG$500,000
·
Fees @ 1.5% = SG$7,500
·
Revenue 100 clients = SG$750,000
This revenue model
demonstrates how FSIs can expand into new market segments and create new sources
of revenue.
3) Achieve Higher Returns
Protégésoft simulation
testing has shown that dynamically rebalanced portfolios deliver 29 percent greater
returns than "invest and hold" portfolios over a three year period.
4) Manage Risk Dynamically
At the click of a button,
wealth managers can use FPB to make buy, sell and hold decisions based on 'up to-the
minute' market analytics while conforming to the risk preferences of their individual
clients. As market conditions and sentiments change, investors are able to address
their investment risk promptly.
With the FPB solution,
portfolios can be easily rebalanced quarterly, yearly or even on an ad-hoc basis,
so that investors can enjoy risk adjusted returns on their portfolios.
5) Assist in Regulatory
Compliance
FPB simplifies compliance
processes, such as anti-money laundering and anti-product churning activities and
enforces proper roles and responsibilities between parties.
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