Aberdeen Asset Management Leverages F3's Flexible Architecture to Value Exotic Instruments
Aberdeen Asset Management PLC (Aberdeen) is a global investment management group headquartered in Aberdeen Scotland that manages US$270.3 billion of assets* for both institutions and private individuals. Listed on the London Stock Exchange, Aberdeen manages currency, fixed income and equities in segregated, closed and open-ended pooled structures, in addition to running a sizeable European property business. Aberdeen invests worldwide and follows a predominantly long-only approach, with an active management, team based strategy. The group employs over 1,800 staff across four countries worldwide.
A large institutional asset manager, Aberdeen trades a wide variety of OTC instruments in multiple currencies, including interest rate swaps, credit default swaps, spreadlocks and swaptions. Aberdeen was using proprietary systems to value its derivatives, but needed a new central system that would allow it to value its entire portfolio of instruments and provide the dealing desk with real time valuations for all OTC positions.
A key requirement for the new solution was flexibility, such that models could easily be modified to adapt to changing market standards. Aberdeen needed the ability to accommodate possible future variations on existing instruments in response to an evolving market and the rate at which new instruments are being developed.
It was imperative that the new system easily integrate with Aberdeen's existing infrastructure to increase efficiency and reduce costs. In addition, the system needed to be powerful and robust enough to easily support Aberdeen's over US$270.3 billion US worth of assets and scalable over its global offices.
Aberdeen selected F3 SDK, (F3's Software Development Kit) as its OTC Fixed Income derivatives valuations system. F3's simple API allows for easy integration with Aberdeen's internal infrastructure, and it provides the asset manager with the flexibility it needs to value its derivatives portfolio.
"With F3, all Fixed Income derivatives instruments applicable to Aberdeen can be valued under one system and accessed globally, which was the main goal of acquiring a new system," explains Matthew Lynes, Portfolio Manager, Aberdeen Asset Management. "The dedicated .NET interface significantly enhances integration as well as its potential to be used in a scalable fashion in a large organization. We are able to leverage F3 successfully for the valuation and duration analysis of various rate and credit based swap instruments."
Due to the rapidly changing nature of the financial landscape, Aberdeen wanted a solution that could adapt to the market. The company required a solution that was flexible enough to accommodate these changes in an efficient way. F3's flexible architecture and the ability to generically represent even the most exotic financial structures, fulfilled this requirement. "What attracted us to F3 was the ability to model derivatives through a generic approach," says Matthew Lynes. "This ensures that almost any swap type can be valued without the need to rely on providers to update the software for each new instrument."
Aberdeen has used F3's flexible architecture to value such instruments as irregular non-standard cash-flow reset dates in interest rate swaps and non-standard inflation swaps where RPI stops accruing prior to maturity.
Ease of Integration
Aberdeen required a solution that could easily be embedded into its existing infrastructure. It also wanted to use C# as its universal programming language. "The F3 SDK product has been very useful for Aberdeen in terms of running more strategic solutions alongside Excel models," ascertains Matthew Lynes. "As C# is our universal programming language we can build applications with relative ease based on existing knowledge. We have also been able to incorporate F3 into existing systems that retrieve live data feeds from established market data providers that also have C# SDK products available. This has enabled us to reduce the numbers of systems we use for our live swap pricing processes, reducing our costs."
"In terms of integration, the dedicated .NET interface significantly enhances the way users can leverage the product, providing options outside of Excel to incorporate F3 into more scalable solutions which is often necessary in large organizations."
FINCAD's Client Services Program provides in-depth training and services to supported customers. Aberdeen was able to leverage these services to speed its implementation process.
"Given the flexibility and power of the product, having access to dedicated quant support helped us get up and running quickly. FINCAD makes this easily accessible, and conveniently located in Dublin. For F3 SDK, FINCAD also offers additional Dublin based trading sessions. All of our queries were answered in an appropriate time frame, and FINCAD has also been receptive to feedback for future product development," comments Matthew Lynes.
FINCAD takes a customer centric product management approach. According to Mr. Lynes, "There is plenty of scope for users to request new functions to be added into the function libraries of future releases of F3 and there have been several added that Aberdeen has requested in the last year."
Aberdeen sees its use of F3 expanding in the future. According to Mr. Lynes, "F3 is very powerful and flexible, and capable of complex and detailed risk management. At this point, we are not using F3 to its full potential. Currently using both Excel and C# based applications across Aberdeen globally for the valuation and duration analysis of various rate and credit based swap instruments, we plan to expand our use of F3 to include Monte Carlo simulations of portfolios and various forms of scenario analysis in the near future."
* Source: Aberdeen Asset Management PLC, 31st December 2011