New tool automates the process of dilution application accurately and fairly to existing shareholders and protects the fund’s holdings.
big xyt, the independent provider of smart data and analytics solutions to the global trading and investment community, today announced the launch of its Portfolio Liquidity Analysis solution. Developed in partnership with investment management firm, Baillie Gifford, it enables buy-side firms to gain an independent view on the liquidity of equity portfolios by using reliable and consistent market data.
Investment managers apply a dilution levy as part of their cashflow management process of pooled vehicles. This ensures clients are treated fairly and mitigates the impact of price volatility caused by cashflow activity. big xyt’s Portfolio Liquidity Analysis tool, a subset of its Open TCA solution for execution analysis, addresses the challenges faced by the buy-side. This is particularly helpful when sourcing accurate datasets, which must be harvested, harmonised and processed consistently over time to provide reliable estimates. Consultations are ongoing with industry bodies, and new guidance is expected during 2024.
An understanding of addressable volumes is required to create a realistic ‘denominator’ for these calculations, for example, only measuring the relevant liquidity that is accessible and excluding what is not. Sharing this data with banks and brokers (the traditional providers of pre-trade cost estimates) can also increase the risk of information leakage.
The new solution automates the process of dilution application in a way that is data-driven and fair to the existing shareholders. It also provides a quantitative view of the application of dilution charges. When applied correctly, this helps investment managers minimise the impact of trading on a fund’s performance, and apply test scenarios to evaluate the effect of more volatile conditions.
Trading data is used to calibrate the market impact estimates to improve the model fit and accuracy of the estimates (based on realised episodes of similar flow types). The market data model is responsive to changes in market conditions, allowing for accurate pricing in line with market conditions.
Mark Montgomery, Head of Strategy and Business Development at big xyt, commented: “Working on this solution in partnership with Baillie Gifford has provided a new turnkey solution for the buy-side. It addresses the major challenges faced by investment managers when managing portfolio liquidity, and reduces operational risk and user error with a robust yet streamlined process that automates dilution charges on a daily basis, which saves teams significant research time that can be used elsewhere.”
Adam Conn, Head of Trading at Baillie Gifford, added: “The partnership with big xyt was a collaboration between our trading and operations teams. Our aim was to create a robust dilution adjustment and a threshold process for large deals, that is in the best interests of our clients, with high regulatory standards.”
The results are displayed in interactive web-based dashboards, and bespoke views can be created to meet a variety of industry needs.
About big xyt
big xyt’s independent analytics tools provide unrivalled data accuracy and enable users to transform data into decisions and to observations for their audience.
big xyt has created a global ecosystem for tick data analytics covering more than 120 trading venues across equities, ETFs, FX, and listed derivatives (futures and options), and are available in T+1 and real-time. Our clients include major global investment banks, asset managers, leading exchanges and trading venues, ETF issuers, and regulatory bodies.
big xyt’s unique private cloud-based technology normalises trade conditions of venues, allowing accurate and transparent aggregations of trading volumes, comprehensive analysis, and delivery of results in flexible and customisable formats. Our APIs support more in-depth quantitative research and feed-dependent systems such as algorithms and decision support tools, which are essential for data science and quant teams.
Firms across the financial services industry choose big xyt as their data analytics partner due to our independence and ability to provide the best quality normalised data, our capability to deliver complex security and execution analytics in sophisticated and data-rich financial markets, as well as the in-depth domain experience of the big xyt team in setting up, running and maintaining data analytics environments for tick data in highly secure environments.
About Baillie Gifford
Baillie Gifford is an independent investment partnership founded in Edinburgh in 1908, focused on long-term growth investing in some of the world’s most exciting companies. With 1,800 staff and assets under management of £230bn, at 30 June 2023, it has offices in Edinburgh (HQ), Dublin, Frankfurt, Hong Kong, Amsterdam, Krakow, London, New York, Shanghai, Toronto and Zurich.