For money managers, finding technology that fits their investment strategies often means stretching their resources.
Institutional investors on the eve of the millennium are finding themselves all asking the same question: Do we build it or do we buy it?
The answer is, yes.
Money managers are coming up with their own enhancements to social investment screening technology, risk management systems and performance attribution software, but often by teaming up with the vendors that sold them the systems in the first place.
Portfolio construction for individual client portfolios with social restrictions was the main problem at J.P. Morgan Investment Management Inc., New York.
Jim Yang, vice president in software development at the money management firm, decided that data vendor Investor Responsibility Research Center, Washington, was the best fit in providing social screens, but organizing the data on 175 structured equity accounts with $60 billion in assets and keeping it fresh was a stumbling block.
With IMPACT, internally developed database software, in hand, Mr. Yang went to work with IRRC to develop a new way to track J.P. Morgan clients' social restrictions requirements and put them to work in constructing portfolios.
First, IRRC agreed to provide intermonth data on social screens that is downloaded to a Sybase database, which is then updated in IMPACT for portfolio managers to use for screening. The firm also has an internally developed compliance program for post-trade confirmation.
By combining the IRRC and IMPACT, "we kind of opted for a third party," Mr. Yang said.
Money managers at Putnam Investments Inc., Boston, also looked to the outside to enhance the firm's internal capabilities, sort of.
On the risk management and portfolio construction side the firm wanted to expand its investment process "tool kit," said Kevin Divney, senior vice president, equity risk manager.
The tools created to solve the problem were an outgrowth of Putnam's strategic relationship with Berkeley, Calif.-based BARRA Inc., where the software firm helped to create risk analysis software with increased capability from its TotalRisk product.
"We are pushing the envelope with BARRA," Mr. Divney said.
This push includes cutting-edge analytics and tools for reviewing portfolios, all available to Putnam portfolio managers on one application.
The tools created within the new software will be phased in during the next six weeks and some already have been put to use in portfolio construction.
Some of the specialized tools created at Putnam for their risk framework are: a flexible risk decomposition tool that can attribute specific sources of risk to certain portfolio characteristics; a collection of BARRA models; and access to Putnam's own internal risk models.
Many of the current risk management systems out there can't fit a firm's of Putnam's size, Mr. Divney said.
The firm manages $92.5 billion in institutional assets.
"No one size fits all," he said.
