Investment Strategy

The objective of Investment Strategy is to determine the House position on market prospects and to provide targets for the allocation of Funds by the Fund Managers.

The type of data required in this process includes:

• Client Mandate – this provides details of the investment objectives of the Clients under management. It provides direction to the Investment Policy Committee in determining the appropriate asset allocation to meet the investment objectives.
• Market Rules – information on investment rules in each region.
• Economic Advice – information on trading conditions and prospects within different financial markets and regarding different financial instruments.
• Portfolio Reports – data concerning the current status of the portfolios
• Performance Reports – data outlining performance against targets.
• Research data - data compiled by the internal Research department ranging from analysis at a geographical level to individual company reports.
• Data Service Providers – information on market data such as prices, indices.

Research

Research is central to the Investment Process. At the macro or strategic level, research is a contributor to the asset allocation process. At the micro or stock level the quality of research is the major determinant of the active Fund Managers’ success in stock selection and hence his performance.

Data requirements relevant to this process include:

• Company information – Information relating to the value of a company relative to its share price.
• Market Data – Information delivered by Data Service Providers such as prices and financial news on individual companies and markets.
• Broker reports – information from individual brokers providing market and company analysis.

Portfolio Modelling

The process of generating buys and sales of stocks within the portfolio in response to changes in asset allocation targets, withdrawals and contribution of funds. Increasingly this work is conducted with the assistance of computer tools and is reliant on the data from various sources:

• Portfolio Accounting – The Accounting system provides data relating to portfolio positions and transactions. This is used to compare the existing portfolio against the model portfolio.
• Client Benchmark – Contains data relating to the targets set by the Client with regard to the portfolios overall performance.
• External Models - External advisors will provide data relating to external portfolios within the same investment sector. This is used to track the performance of the portfolio within the sector and to compare the investments held by the portfolio.
• Asset Allocation Targets – The internally developed targets for allocation of investments for portfolio type reflecting the House view on market prospects and the Client's investment objectives.

Pre-Order Compliance

Otherwise referred to as Guidelines (Client and House) or Mandate (Client) checking.

This process is usually executed automatically by the Front Office system and ensures that the orders that have been proposed by the Fund Manager are in accordance with the Client and House rules.

Inputs to the process include:

• Orders – Details of the proposed orders from the Portfolio Modelling and stock selection process.
• Client Mandate – Instructions from the Client relating to the type of investments that may be held by the portfolio. This data may also include limits on certain investments. e.g. the portfolio may only hold 2% of its total portfolio in the Medical sector.

Deal Generation

On completion of the modelling and pre-trade compliance processes orders are created for action by the dealing function. Increasingly orders are created automatically by the Front Office system as a result of the modelling process. Where possible these will be in the form of block trades.

• Orders – Received from the portfolio modelling process. These may be received from a number of Fund Managers
• Deals – A series of deals will be constructed from the orders database. These become deals that will be struck with the brokers in the market place.

Pre-Deal Compliance

Prior to the deals being executed with the broker a further compliance check is completed within the Order Management system to ensure that no dealing guidelines will be breached by the proposed deals

Data inputs will include:

• Stock/Issuer exposure – exposure guidelines regarding the current positions held by the portfolio in the stock to be purchased/sold
• Broker exposure – rules and limits regarding the firm’s exposure to Brokers

Dealing

Once the deals have been constructed they can then be communicated to the firm’s Brokers. The Dealer will attempt to obtain the best price for the deal. Deal orders historically are placed with the market manually however increasing use is now being made of the FIX protocol – depending on the trade and instrument being traded.

Data requirements for this process include:

• Deal Orders – Received from the Order Management system and forwarded to the firm’s Brokers
• Prices – obtained from the Brokers

Confirmation and Matching

The details of trade confirmations for block trades are received from the broker and are matched with the records on the Order Management system. Once matched the trade becomes a booked deal. Items that have not been correctly matched are investigated. Once the block level details have been matched the individual allocations need to be matched.

Data requirements include:

• Executed Deal – Details of the deal that was executed with the Broker. Provided by the Front Office or Order Management system.
• Block Details – Details of the trade as recorded by the Broker. This will be automatically received into a Matching system and compared with the executed deal details.
• Allocations – Data relating to the individual trades allocated to each portfolio and communicated to the Broker.
• Allegation – Details of the allegations as recorded by the Broker. These will be compared with the allocated deal details held within the Confirmation system.

Trade Instruction

In order for the trade to be settled in the market place it is necessary to communicate the trade to the Global Custodian. In addition to the basic trade details such as settlement amount and stock details it is also necessary to add data relating to the Broker’s settlement instructions.

• Trade – Details of the confirmed trade.
• Settlement Instructions – Details of the Broker settlement instructions. These may be held within an internal Instructions database or communicated with each individual trade.

Settlement

Settlement is the final transfer of cash from the purchaser to the seller in exchange for the delivery of securities.

Data required in this process:

• Settlement Details – Confirmation that the trade has settled. Settlement details are compared with the records held internally and the settlement status is updated accordingly.
• Fail Details – If the trade has failed in the market place details of the trade and the reason for failure will be communicated by the Custodian.
  

Settlement Reconciliation

Settlement Reconciliation is the process of matching individual trade records with the Custodian on settlement date. This reconciliation will be performed on a daily basis to ensure that all of the transactions have been accounted for correctly and that failed trades are identified promptly.

Inputs to this process include:

• Statement of Transactions – received on a regular basis from the Custodian and contains details of all transactions, either settled or open.
• Transactions Database – Details of all transactions executed by the firm. These records will be compared with the Custodian's records.
• Exceptions Database – Any records that are not matched with the Custodian's records will be held in an Exceptions database until resolved.