The Dust Has Settled on Fixed Income Attribution

A few years ago, we noticed a shift in the demands of our clients. Internal consumption was still a need, but aligning the results to those of the investors became vitally important. Changes in the market, a reduction in interest rates, the rising complexity of benchmarks all put even more of a spotlight on alpha. Lower alpha, coupled with increased demand from the investor, meant the same result from the same solution was vital. This, along with an acknowledgment that very high quality data was a necessity, drove the biggest shift we’ve seen since BISAM started in this field. As fixed income attribution moved from a front office to an enterprise view, the middle office controls long present in performance applications now became mandatory.

Since then, we have coalesced around a core set of requirements (whether admitted or not):

• Strong operational controls are key to identifying data problems before they become attribution issues
• Attribution methodologies should support all asset classes and security types
• Strong operational functions must align the structure of a portfolio to the attribution results and offer flexibility to adapt to changes
• Attribution results should be distributed internally and externally and must be consistent

So if we can agree at this point that the dust has indeed settled on a fairly standard set of methodologies, it’s important to remember that there is still more to fixed income attribution. The industry must continue to innovate in order to meet investor demands, and taking a focus on consistent and high quality data will be key. We need a spotlight on the operational controls long championed by the middle office. . .but that’s for another day.

This post originally ran on the BISAM INSIGHTS BLOG. FactSet announced the acquisition of BISAM on March 20, 2017. Read the press release.