The price of Bloomberg’s order management system (OMS) is proving well worth the benefits it delivers to one member of NeuGroup for Cash Investments who is managing a growing amount of his company’s excess cash in-house. Among the greatest advantages is the time the OMS saves him by automating what had been manual work. - “This was a huge efficiency improvement for us as we’re building out our self-directed capabilities,” he told peers at the group’s fall meeting. The efficiencies provided by Bloomberg’s AIM system have allowed him to increase the internal portfolio from less than $500 million in assets to close to $2.5 billion in less than two years.
- “This tool allows us to scale,” he said. “That’s really what I found valuable as we were looking to grow the internal portfolio.”
- His experience offers valuable insights to other cash investment managers contemplating in-house portfolio management and those who want to assess the value of an OMS.
Why manage money internally? The decision to invest in an OMS only arises, of course, after a treasury team decides to manage significant sums itself rather than handing cash to managers of separately managed accounts (SMAs). The NeuGroup member discussed his company’s view of an internal portfolio and its purpose.
- “For us, it was greater control of investment holdings and less liability of information leakage”—meaning information that managers may obtain after asking why a company wants, for example, to take $1 billion from its SMAs.
- Also: “Sometimes managers have 20 or 30 portfolios that they oversee and you don’t exactly get all the love and care that you want. So having a portfolio that I’m dedicated to helps make sure that I’m putting all the focus and attention into this portfolio that it deserves.”
- He added, “I can also participate in deals that I find attractive. So if Toyota comes with a prime ABS, I can say, okay, let me put in for that because I really like it; it’s safe, it’s secure. My managers may not participate in that deal, but at least I got some of it.”
Achieving goals: efficiency and compliance. The member’s presentation spelled out the main goals he wanted to achieve in implementing an OMS. They include:
- Eliminating manual portfolio reconciliation at the start of the trading day. That had involved running reports in Clearwater where data was not real-time, potentially creating compliance issues. “Bloomberg’s compliance system is pre-trade and also post-trade. So it’s checking on both ends of whatever activity I or anyone else trades for our company. So it’s more real time and it’s more dynamic,” he said. (Clearwater remains the accounting and investment book of record.)
- Using the real-time portfolio exposures shown in OMS offers the member views of asset class, sector, credit rating, issuer, maturity buckets and liquidity.
- Executing pre-trade compliance checks for credit ratings, counterparty concentration and investment maturity. The OMS automatically checks security purchases against compliance rules, with override options if applicable. Violations and/or warnings can be emailed to team members for accountability/audit purposes. The OMS has automated the so-called staging of trades before they are executed, speeding and simplifying a process that used to involve using Google Sheets.
- “To stage the trade, I click on the CUSIP, or the bond that’s being offered. And then, if I like it, I do all the analytics, there’s a big green bright button that says ‘buy’ and that stages the trade. I put in how much I want to do, what portfolio I want to allocate to and run a compliance check. If it’s good, I can reach out to the broker-dealer or to the electronic desk to initiate the trade.”
- Enabling post-trade communication with custodians. After allocating trades to specific portfolios, a trade message is sent to the custodian for settlement.
- “Bloomberg has a way to connect via SWIFT to send the messages to our custodian so that as soon as I do the trade and it’s acknowledged by the counterparty and the ticket comes in, it’s allocated, it goes automatically to the custodian.”
- “Bloomberg is connected to our custodian. Our custodian feeds a report of all the holdings at midnight. So Bloomberg knows what I traded and knows what I was holding the day prior. And so it reconciles all the holdings for me as well.”
Looking ahead. The member recently told NeuGroup Insights that the OMS has been running smoothly since the fall meeting. “We are potentially opening up another portfolio that would sit in Europe for international cash that isn’t repatriated,” he said. “And Bloomberg is easily able to accommodate that—communication with custodians, rules/compliance management and any trade reconciliation breaks.”
