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Family Office – Trading Tools and Platforms (2)

Consolidated reporting
Good design of this process early on will allow families to understand their investments, identify risks, and strengthen their confidence in their family office. Consolidated reporting is known to be the most valuable tool for a family office, and is highly recommended.

Trading and portfolio management tools
Some family offices employ an asset allocation model that they give to fund managers. Others make their investments in-house, in which case portfolio management and trading systems become more important.
Various modules can be added to the infrastructure to deal with the increased scale and complexity that this leads to. These can include:

  • A portfolio management system:
    This provides the backbone of a fund’s operational infrastructure and acts as the internal books and records. Functionality includes P&L, NAV views and reporting, cash and corporate actions management, reconciliation, and integration with key third parties.
  • An execution management system:
    An electronic trading platform that provides Direct Market Access trading connectivity as well as direct connectivity to broker algorithms. It also includes level 2 data (market depth) and advanced pairs and program trading functionality.
  • An order management system:
    This provides the main trading platform for the firm. Like an execution management system, it also provides Direct Market Access (DMA) trading and broker connectivity. Other key functions include compliance (pre- and post-trade), rebalancing, order staging and allocations, and portfolio modeling.

Risk management systems
This is usually split into two distinct systems: Real-time/Neartime and End of Day. Real-time/Near-time risk is provided bysome portfolio management system providers and functionality includes real-time sensitives (Greeks), theoretical valuations, risk shocking and scenario analysis. End of day risk system functionality includes Value at Risk calculations/reporting and more complex scenario analysis.

Client relationship management (CRM) tool
A CRM tool is vital for a family office to manage critical information, such as that relating to family members, in one central location. Information retained in a CRM database should include: family contact information, family discussions regarding services or major family events, the structure of  the family, and third party contacts such as legal counsel, accountants and insurance contacts. Some reporting and custody platforms will offer such a CRM tool in their overall solution.

Human capital and technology
When choosing technology for a family office, it is imperative to have the right individual(s) in place to manage and operate the software. Such individuals, who may be in dual operational roles, should have an understanding of performance analysis and of accounting principles. They should be detail oriented, have the ability to leverage technology for integration

purposes, and have basic Excel skills. Depending on the size and technical complexity of the IT system, some family offices may hire a Chief Technology Officer. This person would be  responsible for support, updates, communication and software training.
The implementation of IT in a new or existing family office may require additional resources. These resources might involve external consultants, who can provide advice and support with
respect to integration, implementation and the verification of input and output data.

Implementing technology
Once the core needs have been identified and the appropriate solutions chosen, it is vital to implement them effectively. Appropriate implementation may include the following:

  • Writing a detailed project plan that sets out the
    responsibilities of each vendor.
  • Agreeing the data import processes with each vendor.
  • Creating data and functionality test scripts for each
    platform.
  • Hiring an external consultant for data output testing.
  • Holding frequent meetings with each vendor on progress
    and on project plan milestones.

For further informations please contact us directly.

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