Barra, the Berkeley, California-based vendor of risk management systems for the funds industry, is beginning to market a new module called Barra Enterprise Performance to institutional investors that allows them to measure investment performance based on daily pricing information.
Olivier D'Assier, Tokyo-based vice president for Barra Asia-Pacific and president of Barra Japan, says even the world's biggest money managers take days to measure returns based on daily prices, because they have thousands of securities to look after. "Our module does it in seconds," he says.
The technology comes from a recent acquisition. In December, Barra bought Sydney-based Investment Performance Objects (IPO), which provided daily pricing systems to six Australian fund managers, including the local arms of Zurich Financial Services, Merrill Lynch Investment Managers and Barclays Global Investors, as well as First State Investments in the UK.
"IPO had the technology but they didn't have the data," D'Assier says. "We do, and we can take them global." Barra is now training its staff to understand the product and has begun pitching it to large fund management houses in Asia, custodian banks (including Japanese trust banks) and to the largest pension funds and insurance companies, including monetary authorities.
"We think the main users will be fund owners such as insurance companies and pension funds," says D'Assier. "Because they've outsourced fund management, they lack the tools to measure the performance of their managers. This will help them, and will also put pressure on external managers to improve the quality of their reporting. We've found a lot of errors in their calculations because managers based reports on monthly data. Without data on daily returns, investors are losing out."
Barra argues that daily performance data provides more accurate performance measurement and attribution than the standard monthly calculations. Intra-month cash flows and portfolio volatility create errors in monthly reports, sometimes to a degree that is as great as the alpha that a fund manager claims to generate. But it also require a data requirement as high as 30 times as voluminous than monthly reports.
Although Barra Enterprise Performance claims to make using daily figures feasible, for now it only measures returns without adjusting for risk. For now, Barra's risk-adjusted performance measurement module, which it calls Aegis Performance Analyst, can only handle monthly figures. D'Assier says the next move for the firm is to add risk-adjusted data to Barra Enterprise Performance.
