The need for multi-currency capabilities that would eventually allow Teacher Retirement System of Texas (Austin) to shut down its legacy systems and completely automate its portfolio management processes is what drove Jerry Albright, director, investment accounting, TRS ($90 billion in assets), to look for a new accounting solution.
"We were in desperate need of multi-currency ability and in 1995, we initiated a study to research whether we should build or buy a solution," says Albright. "We made the decision to buy rather than build based on cost," he explains, "and from there we looked at 13 different packages." After evaluating the various solutions, TRS selected PAM from Princeton Financial Systems (Princeton, NJ) because, says Albright, "the company had a solid reputation, a strong accounting solution and good customer service."
Implementation of PAM began in early 1996 and theapplication was rolled out in stages. "We started with the mortgages piece because we didn't have that many mortgages and it seemed like a good place for us to start learning more about what was required for the company-wide implementation," Albright explains. From mortgages, TRS moved to the equity portfolio piece and then fixed income assets. Total implementation time required about 18 months, says Albright, "including back-loading and balancing three years of data." The greatest challenge in the conversion, says Albright, "was controlling the learning curve. We definitely got faster with each module, it was important that we implemented in stages," he explains.
Recently, additional PAM modules have also been added, including the front office Bloomberg (New York) Trading System and the middle office Custodian Trade Notification, which have allowed TRS to transition from a semi-automated to a fully automated trading system. "In the past, there was manual input of trade information when the trade went from the portfolio manager to the trading room. With Bloomberg, we've eliminated that step, which has really cut down on the number of errors and has also helped with compliance."
Users access PAM through PCs running Microsoft (Redmond, WA) Windows NT. "There was some new hardware brought in," says Albright, "but only because we are always upgrading systems, not because we had to implement this solution." And the legacy systems have all but disappeared. "They are still there," says Albright. "We just don't use them anymore."
The success of the implementation can definitely be measured in numbers. In 1995, TRS had $45 billion in assets and today it has more than $90 billion. "In doubling our assets, our transactions have obviously increased in tandem," says Albright. Trade volume increased more than four-fold, from 6,000 trades in 1995 to 26,000 trades for fiscal year 2000. And yet the number of individuals in Albright's department has actually decreased over the same time period, he adds.
"There is no doubt that we have realized tremendous efficiencies with this system," continues Albright. "It has also increased our knowledge of what is occurring with our processes. In the past, we used to only load prices once a month. Today we load prices every day. In the past, we closed once a year. Now we close every day," he explains, adding, "the information is not only more timely, it is also of a higher quality."
Albright's advice to users considering a similar project is to "be far-thinking in terms of how your systems are going to be set up and spend more time planning the structure. We set it up to suit our company, but then discovered that the pieces fit together best if you follow standard insurance industry practices," according to Albright.
SOLUTION: PORTFOLIO MANAGEMENT
COMPANY NAME: Teacher Retirement System of Texas, Austin, $90 billion in assets.
LINES OF BUSINESS: Health and retirement benefits.
VENDOR/TECHNOLOGY: Princeton Financial Systems' (Princeton, NJ) PAM; Microsoft (Redmond, WA) Windows NT; Bloomberg (New York) Trading System, Custodian Trade Notification.
THE CHALLENGE: Implement an automated system for multi-currency accounting and trade management.