The majority of SimCorp’s clients use the performance module in some shape or form. The current performance module of SimCorp is very mature and has a rich library of analytics, supporting all asset classes, and is considered best in class for official returns. Furthermore, it is fully integrated with the book of records and therefore transactions-based by design which allows for maximum accuracy and transparency.
However, the current solution is operationally heavy, using a calculation batch setup which takes a long time to execute. The performance tables often take up more than half of the database size and it is often prohibitive to take SimCorp Dimension to the cloud where more lenient storage is necessary.
Infrastructure cost runs in the hundreds of services which requires expensive hardware and Oracle licenses.
It is no secret that operating the SimCorp performance module requires a lot of resources when the underlying data is wrong as they require recalculations that are highly manual, cumbersome to set up, and slow to execute.
It truly is Simcorp’s Achilles heel.
Performance Reconstructed
SimCorp has built a new solution called Performance Analytics which is capable of creating performance results in seconds. This is achieved by keeping all data and calculations in memory rather than constantly querying and saving records to the database. Most of the overhead in the current module comes from interactions with the database.
Lars Ole Hansen, Director, Global Product Manager at SimCorp explains: "SimCorp’s performance solution is recognized by our customers as the market leading solution for official Performance Measurement and Attribution. This is due to the coverage of all asset classes and the fact that it is transaction based by design.
It is also highly configurable and you have full control of the timing of cash flows and the allocation of strategic benchmarks to map the investment decision hierarchy. Traditionally, our solution was often complemented with other tools among the front office analysts. This in turn means they had license, reconcile, and operate multiple performance systems for official/client reporting and portfolio analysis in the front office. With the introduction of our new Investment Analytics service, we change the playing field in this domain. With our offer, customers will need a single system to support all the disciplines in the Performance Measurement and Attribution space. This includes: GIPS certification, Performance Measurement for Client and stakeholders and Front-office performance attribution"
Besides lifting the calculations to speed them up, the process is done smarter by only calculating what the user requests, doing this on the fly and delivering results instantly. Removing the batch pre-calculations gives flexibility to the user to choose any breakdown or aggregation he/she wants.
Any change to the IBOR, security master, or market data is updated after the valuation process, which gives the performance team control of which backdated changes to update performance for.
The underlying basic configuration will continue to exist; this includes the performance calculation, benchmark calculations, and look-through, but also some of the fundamentals such as Investment Structures, Model Portfolios, Benchmarks, SAAM and PAB, Pricing, and Key Ratios.
What will be replaced are the performance measurement, performance manager, dashboards, and performance reports. The calculation and management part will be taken over by the ‘in-memory’ calculation services and data will be presented in a new style Performance Service via backend APIs.
This allows customers to easily access performance data in the front office, in a modern web app, for client report integrations, and for storing results in the Data Warehouse. In other words, data is provided online from memory and distributed using APIs where it is needed. Results can of course be stored outside the core SimCorp tables, but these are result based and much smaller in size compared to the existing setup.
NOTE: What we have described until now covers basic performance results and is intended as a prototype where clients can get access and work with SimCorp to test out and solidify the solution in a sandbox environment through SimCorp’s development partnership program. This includes a pre-defined setup which is meant to run pre-calc as a service in the cloud. A production-ready solution from SimCorp will not be available until the second half of 2023.
What’s Next?
To make Performance Analytics as a Service production ready, a lot of development will take place over the coming 1 year. This includes performance measurement and attribution, GIPS reporting, and the ability to run on-demand calculations. ESG attribution will be covered later to better explain the impact of ESG-related decision-making in the investment process.
And of course, during this year of development, SimCorp will work with select pilot clients to secure that the software meets their expectations. This will allow a few clients to sign up for it in 2022.
In 2023-24 SimCorp aims to reach maturity and cover the same functionality as they do in the old performance module. Furthermore, the plan is to enable client reporting.
In 2025, SimCorp plans to add advanced solutions that don’t exist in the current module. These include the ability to create automated insights, and leverage machine learning, and artificial intelligence for a smarter and more advanced output.
Benefits
You get fast returns. Many SimCorp customers struggle to get through the overnight end-of-day batch before the next morning. As the performance measurements and reports calculations in the overnight batch flow will become a thing of the past, the nightly batch processing times will be shortened drastically, allowing for start-of-day positions and performance numbers to be available to front office without any delay.
The good news is that existing clients do not need to change the core underlying configuration. A lot of the setups already in use don’t have to be changed as mentioned above. Setting up performance measurements, dashboards and reporting do need to be worked on.
Anybody who has opened the performance windows knows how overwhelming they can be. SimCorp promises a better user experience with more flexibility and greater transparency, making it more user-friendly and modern. And it needs to be if the target audience is the front office.
When it comes to hardware, no calculation servers are needed beyond what is required for the valuation jobs such as the performance and benchmark calculations – the parts that exist today and will not change. In other words, if a SimCorp customer is using 100 calculation servers dedicated to performance measurement and reports, they can switch them off. Or at least re-evaluate their service platform and optimize server utilization.
To better attract analytic users to the platform, SimCorp is also building a completely modernized user experience to consume performance analytics. This will be delivered as a stand-alone web app which interacts dynamically with the underlying analytics engine described above. For detailed analysis, SimCorp users can drill back to SCD for full transparency or make corrections to master data.
Some of the benefits that can be expected beyond 2023 are described next.
Static reports will be replaced by a dynamic dashboard based on SimCorp Business Intelligence or the clients' preferred tools via SimCorp’s open APIs, allowing for easy access anywhere and on multiple devices. This should reduce the cost of operation, provide flexibility not only to end users but also to your clients, and provide unlimited analytics for portfolio analysis without having to ask IT to build another report.
Client communication via SimCorp’s client reporting and digital engagement platform will also benefit from the integration to the new performance analytics service as the flexibility and time to react to client or prospect requests will be reduced to days.
The end goal, if such a thing can be defined in software, is to include automated insights, chatbots, and outlier detection.
Dynamic dashboard based on SimCorp Business Intelligence or the clients' preferred tools via SimCorp’s open APIs.
Challenges
We will be honest, from what we have seen, the benefits far outweigh the challenges, but nevertheless, we will mention a couple of challenges. It is clearly the early stages of SimCorp’s development, and the functionality is not street-ready yet. It is also a completely new methodology for SimCorp working with in-memory calculations, but it looks like they have overcome the first hurdle in making it work. We are confident that SimCorp will make it work, they have done it before.
On the implementation side, this does require a small project to configure and replace the existing setup. SimCorp promises a standard package for SCD to synchronize with the analytics service to help a fast rollout.
So, re-configuration is limited to extracts and downstream reports. And here comes the bad news: all existing extracts, interfaces, and reports will have to be replaced. Accessing data from the in-memory calculations can only be done via APIs, not by the standard integration tools used today. The challenge here not only lies in building the APIs but also that for performance these are new and not productive at a client site yet.
Revolutionized Performance Measurements
It is still early days for the new performance measurement and attribution in SimCorp. It has drawn a lot of attention at SimCorp’s conferences, and the outlook is promising. Who doesn’t want fast returns?
SimCorp’s move into more modernized front-end displays starts now with performance, but clients can expect more in the future and this will pave the way for next-generation analytic applications for ESG, Risk, Compliance, and general portfolio analysis. Not just faster calculations, but also how data is made available and presented.
We will make sure to return in a year’s time when the product is ready for production and share our experience and thoughts. In the meantime, we would love to hear your thoughts and if this is something you are considering: click here to book a meeting with Ebbe.