FrostRB, a research valuation/budgeting platform developed by Frost Consulting, has integrated its software with a commission management platform developed by Investars, which measures research performance. The partnership is not exclusive as both companies remain capable of integrating other third-party vendors.
The integrated platform provides research valuation and budgeting at various levels of aggregation down to the fund level. Investars implemented its commission management software at the fund level, to help its asset manager clients manage commissions and research credits generated by each fund’s trading. Frost Consulting argues that fund-level budgeting is necessary under MiFID II:
“Given that asset owners are not uniformly invested across the product suite of their asset managers, the ability to value research and track both budgets and payments at the fund level creates MiFID II compliant transparency for both parties. Investars’ fund level capabilities and robust reporting system, match well with the FrostRB platform”, said Neil Scarth, principal of Frost Consulting.
One of the features of the FrostRB solution, which was launched this past February, is that it is multi-asset. Under the FrostRB framework any asset class portfolio can receive a research allocation. Until now, fixed income funds have benefited from cross-subsidization from equity funds. Going forward, fixed income funds should pay for the research consumed in Scarth’s opinion.
The FrostRB methodology is a two-step process. First, CIOs and portfolio managers establish the relative weights for each fund based on its portfolio construction taking into account the strategy, regional or sector weights. The next step is to determine which research is most relevant by asking analysts and portfolio managers to rate the relevance of each provider’s research to their investment process.
Investars was founded in 1999 as Netologic, a custom software firm. The firm developed performance analysis of research buy/sell/hold recommendations, which it offers through its core Investars Insight offering. It added commission management capabilities at the request of clients.
Frost Consulting was founded in 2008 by Neil Scarth and Susan Walton after Scarth left his portfolio manager position for hedge fund Deephaven Capital Management. He was previously a portfolio manager at hedge fund Trilogy Global Advisors.
The partnership potentially adds new clients for both entities, although both firms retain the option to work with other platforms. Although Investars is US-based, it has key asset manager clients in Europe.
FrostRB’s emphasis on fund-level budgeting is at odds with the approach recommended by the UK trade association for fund managers, the Investment Association, which recently argued in a white paper [subscription required] that strategy level budgeting would be sufficient to meet MiFID II requirements.