• Guillaume Fiastre, CEO at Taliance


• 28.05.2015 01:00 am
data , investment management , risk

The pace of private investment is changing. In fact, almost everything in the world of private investment is changing. New sources of capital are flooding the market against a background of low interest rates – and investors are looking for new asset classes to deliver the returns they once took for granted. And yet many within the industry still insist on working in the same way as they have done for the past few decades.

But not for long. Twenty years ago the public market underwent a software revolution – and now these new conditions are forcing a similar transition in the private market. In those days, firms trading for equities and fixed income instruments found an unconnected space between the buy-side and the sell-side. Asset management firms would talk to stockbrokers over the phone to buy securities. Many had one trading system or workflow specifically for equities, Excel for fixed income and pen and paper for cash transactions.

The problem here was that they really needed to look at their portfolio as a whole. A portfolio manager in equities might be buying certain stock and their colleague in fixed incomes buying debt from the same source. Both the chief investment officer and the compliance officer needed to see the whole picture. Consequently, they began to adopt front office systems that could give them this consolidated intelligence.

Now history is repeating itself in the private market – especially in an area which is under unprecedented pressure; alternative investments. While demand for real estate, infrastructure, renewables, private equity and so on is reaching new heights, the number of real assets remains static, leading to high prices, increased competition and accelerated acquisitions cycles. A core asset put on the market in the morning could be under option by the end of the day – a speed that would have been unconceivable a few months ago.  I have heard from portfolio managers on at least two continents, working for both small and large firms that this pressure to make a quick decision is now a big challenge.

For example, although in theory they could get an overview of their investment portfolio using Excel – it would mean comparing many spreadsheets and they’d be unable to turn the necessary calculations around fast enough. Also, Excel doesn’t provide an audit trail of the due diligence process.

Only the quick and decisive are winning out in this new environment. So the asset manager has a choice; take a risk by making a decision without adequate information and due diligence – or lose out to someone who is able to react faster.

So why are private investment firms still so attached to Excel?  Spreadsheet-centric organisations are heavily dependent on highly-skilled employees. But today, the level of complexity, the number of parameters to consider and the intricacy of global economies mean these deals can’t be managed solely by an individual. It’s no longer enough that information is held in people’s heads and in thousands of spreadsheets; people leave the company and spreadsheets remain hidden or lost on hard drives.

Historically there has been a shortage of front office tools to deliver what Excel can’t. However, businesses are adopting new platforms that do now offer a portfolio-wide, consolidated view. These systems are able to combine this ability with strong risk management capabilities as they calculate risk ratios, perform complex regulatory reporting and track changes in assumptions and business models. In turn, this injects agility, transparency and security into key company processes.

When data is of a high quality and available on demand across an organisation, it’s easier to create models for stress testing, test multiple iterations and experiment with different assumptions – and to do this quickly and in real-time where possible. It’s no good having a perfect model, but take so much time to build it that you miss the chance to buy the asset.

But it will take a change of culture to migrate these individual Excel gurus into a software-led environment across the entire company. Some firms are trying to lock down the Excel environment to take control of their spreadsheets. But this compromise doesn’t deal with time-to-market issues and suggests a company too stuck in its ways to adapt to evolving conditions.

It’s clear that Excel is falling short of today’s intensified demands. My answer to the question ‘can you manage a global portfolio in Excel?’ would be ‘in theory yes’. But if you want to do so successfully, compliantly and profitably – I would have to reply with an emphatic ‘no’.