Bond Dealers of America Features Paul Daniels in an Interview

1) Please provide an overview of what Investortools is and what it does.

Paul R. Daniels, CFA Executive Committee Chairman

Investortools is a software company serving institutional fixed income investors. It provides portfolio management systems and credit analysis systems as subscription services. The company also provides software-related consulting services and solutions. More than 100 people, in three different companies, develop our software, serve our clients, and promote our services. The firm’s headquarters is in Yorkville, Illinois, and our people work in Illinois, Texas, other US locations, Scotland, and Bangladesh. Investortools stock is owned by more than 70 individuals, almost all of whom are employees or their family members. The company’s three core values are dependence on God, a client-centered perspective, and a long-term strategic focus.


2) When was Investortools started and how have your markets changed since then?

The business was founded in 1983 (incorporated in 1985), in response to the portfolio management needs of an institutional investment management organization, where I had been a bond portfolio manager. By 1983 I was supervising others buying and selling securities for our employer’s mutual funds. Computer programs then available to us were accounting systems designed for controllers, not money managers. I went to my boss with the basic idea of developing a system designed for portfolio managers and received his permission to work on this project while still in my regular job. Part of the deal that we made was that my employer would be able to use the resulting system. Therefore the firm benefited from the early efforts toward what became Perform. Later they decided to work on development of an in-house portfolio system, but eventually they subscribed to Perform. The first programmer for our original portfolio system was my older son, Dan Daniels, working part-time at first. The part-time soon became full-time. Dan and I are Investortools’ co-founders, and he leads the company’s product development groups.

In those days, software companies typically sold their systems for large, up-front purchase costs and charged recurring maintenance fees. In contrast, Investortools’ business model always has been to license its products to its clients via subscriptions.
Another change in the software market is today’s greater realization by businesses of the cost-efficiency of using optimal software, whether self-developed or purchased. Business managers increasingly realize that wise software expenditures can reduce overall costs while increasing productivity.

Universal recognition by professional fixed income money managers of their need for analytic systems has brought a profound change in the level of sophistication of their portfolio work. Not only are software solutions the norm now, but bond and portfolio analyses have become considerably more complicated. Institutional bond managers continually expect more complex and nuanced analysis.

Besides growing analytic requirements, the most pronounced long-term trend in the last 5-10 years has been the desire for software to provide more “operational” assistance. Compliance and trading features are a growing need in the bond management community. We are continually implementing and enhancing such features.

3) What products does Investortools offer?

Perform is a leading portfolio management system used by institutional managers of municipal bond portfolios. Perform increasingly is being used with U.S. Government, Federal Agency, corporate, and other taxable fixed income securities. CreditScope, the credit system with data provided by Merritt Research Services, LLC, is a repository of credit data, credit models, and creditworthiness conclusions of subscribers’ analysts; CreditScope includes internal credit document management features. Its credit models can produce standard and proprietary measures of creditworthiness based on peer-ranking or range-scoring. Investortools’ clients with both CreditScope and Perform enjoy significant benefits of integration of these systems. That integration allows them to easily shift focus among four levels of discrete data: credit level, issue level, holding level, and ticket level. And the integration of CreditScope and Perform means that reports and graphs can pull information from all four levels.

There are specialized versions of Perform. For money managers of multiple private accounts, we offer two Perform for Private Clients (Perform FPC-I and FPC-II) systems which enhance efficiency in allocating trades, considering investment targets, compliance limits, and policy guidelines. And Perform for Securities Dealers (Perform FSD) facilitates sell-side analysis of institutional client portfolios.

A functional extension of Perform is the Custom Index Manager, for analyzing portfolio risks, returns, and attribution in comparison with industry benchmarks of bonds in the Barclays Capital Indices, or the Standard & Poor’s Municipal Bond Indices, or the Bank of America Merrill Lynch Fixed Income Indices.

Smart is a specialized portfolio system for money market instruments and other short-term securities, both taxable and tax-exempt. Smart was named for the acronym Short Maturity Analytic and Reporting Tool. Its compliance features correspond to regulatory requirements of the SEC’s Rule 2a-7; including elaborate stress testing and policy compliance.

Energy Credit Manager is for utilities to track, analyze, and administer counterparty risks from long and short positions in electric power and natural gas.

4) Who are your clients, and how do they benefit from using your products?

You likely have heard the names of many if not most of our clients. They are financial institutions that manage fixed income holdings, whether owned directly or owned by their clients. Most are banks, mutual fund families, private account managers, insurance companies, and securities dealers. 

In the early days of Investortools, clients used Perform largely as an analytic system, and they still do, to evaluate characteristics of bond portfolios. Those characteristics include sensitivity to future interest rate changes. In recent years, we have increasingly added Perform features for trading operations. Operational features include rules to define optimal characteristics of holdings – and allocation “suggestions” for traders or portfolio managers to revise before execution of trades. CreditScope makes it easy for analysts to rank credits against other credits, based on multivariate models which can be proprietary. And with the integration of CreditScope and Perform, portfolio managers and analysts can more easily evaluate the creditworthiness of holdings and potential holdings. 

5) Describe how Perform is being designed to broaden its market.

For many years, our clients have used Perform for both municipal and taxable securities. But that system’s primary reputation was in municipals, partly because it was largely designed for them and handles them so well. So Perform became known as a “muni” system. In order to make Perform more of a taxable system, we have been systematically designing and adding features focused on taxable holdings. So far, the market acceptance of those efforts has been encouraging. A number of prominent clients use Perform to efficiently manage taxable portfolios.

6) How do participants in the fixed income markets benefit from using Perform?

There still is considerable market inefficiency in the fixed income markets, especially in municipals – because market participants, individually and within any organization, focus on only a small percentage of municipal credits and issues. I believe that over the years, Perform has given its subscribers a relative advantage in the long process whereby market participants – very slowly – increase overall market efficiency.

Perform offers four main values: analytical precision and sophistication; operational tools (such as trading and compliance features) to grow assets while minimizing headcount; integration with credit and risk experts; and finally, just being on the same platform as so many other institutional managers provides a level of standardization and trust.

7) When you mentioned CreditScope’s credit models, you referred to peer-ranking and range-scoring. What is the difference?

I consider peer-ranking the most valuable capability of CreditScope. Standard CreditScope Rank models report percentile rankings of credits, based on weighted sub-rankings of selected credit characteristics applied to comparable peer groups. As alternatives to standard models, users can develop their own credit models. Using an easy set-up for the CreditScope multivariate ranking model, a user can select and weight his or her own credit characteristics for sub-rankings.

Unlike the peer-ranking model, which suggests creditworthiness based on relative strength or weakness percentiles, CreditScope’s range-scoring model, a recent addition, provides credit scores based on absolute measures. The range-scoring model provides user-set ranges of user-determined credit criteria to create scores. This model has the burden of needing to be monitored and revised if and as credit standards change.


8) What are the data sources for your products?

For the portfolio systems, we provide some data, but bond descriptive information and market pricing typically are imported from a file, an internal data warehouse, or a commercial data provider. This gives our Perform and Smart clients complete freedom to select their own data providers. CreditScope includes financial, utilization, and demographic data from Merritt Research Services, LLC.

Perform for Securities Dealers’ holdings data comes from the respective money manager institutional clients. 

Custom Index Manager gets its bond-level data from the index providers, Barclays Capital, Standard & Poor’s, and/or Bank of America Merrill Lynch.

Credit data in Energy Credit Manager comes from Merritt Research Services, LLC and Mergent, Inc.

Originally published in Bond Dealers of America at Article Link.

Investortools Incorporates Kalotay’s After-tax Muni Bond Analytics into Perform


Investortools Incorporates Kalotay’s After-tax Muni Bond Analytics into Perform®

Approach is Essential for Proper Risk Management of Munis

New York, November 3, 2015 – Kalotay Analytics, a provider of high-speed, high precision fixed income libraries, and Investortools, whose platform is utilized by over 250 financial institutions to support portfolio management and credit analysis, have released to Perform® clients enhanced tax-aware tax municipal bond analytics using Kalotay’s patent-pending approach.

Managers are often caught off guard when interest rates rise and the prices of lower coupon bonds drop much more precipitously than predicted by traditional risk calculations. The reason is that when prices fall below par, traditional calculations fail to account for the tax payable at maturity on the discount, which pushes prices down further.

"Incorporating tax treatment is vital for proper risk management of munis. The enhanced analytics will allow market participants to more accurately quantify the sensitivity of holdings to rate movements. We’re delighted to partner with Investortools to bring this innovation to the market,” said Andy Porter, Managing Director of Business Development at Kalotay Analytics.

"Investortools is excited to offer our clients cutting-edge Option Adjusted analytics that take into consideration the real world effect of taxes in the determination of municipal bond prices,” said Stuart Graydon, Chairman of Investortools. Dan Garrett, Vice President of Investortools added, “With the new Kalotay functions, portfolio strategists won’t be blindsided when there is a sudden rise in interest rates."

Investortools and Bitvore Partner to Bring Proactive Portfolio Monitoring into Perform®



Investortools clients receive precision intelligence about changing situations in their fixed income portfolios.

Chicago, April 12, 2016– Investortools, Inc. has partnered with Bitvore Corp. to integrate timely market intelligence into the Investortools Perform® portfolio management system.  Bitvore monitors thousands of news and research sources to identify material events and changes impacting the credit risk of municipal bonds and obligors.  Through the integration, Bitvore will monitor portfolios inside Perform and alert portfolio managers and analysts to important changes in credit situations.

In a broad, opaque market, portfolio managers lack the time to manually search for news they need to manage their business.  Bitvore’s proactive surveillance system monitors thousands of local and national sources to provide clear and timely information for finance professionals to make better business decisions. 

“Financial institutions large and small use Perform in their daily workflow for fixed income portfolio management and credit analysis.  Now portfolio managers and other users will have seamless access to relevant news that directly impacts their portfolios – all from within Perform.  We are excited to give our clients a competitive advantage with Bitvore’s proactive monitoring service” said Scott Bradley, President of Investortools.

“It was exciting to learn that two of our key vendors were partnering to provide access to Bitvore Alerts within Perform.  It is a clear advantage for both portfolio managers and analysts to access relevant extra-financial information directly in Perform.” said Andrew Meyers, COO of Breckinridge Capital Advisors, a client of both Investortools and Bitvore.  “It should provide a more efficient and complete view of individual assets held in the portfolios we manage.”

“It comes down to transparency and vigilance.  The internet is a noisy, messy place and muni changes are reported every day at local levels.  Bitvore keeps a finger on the pulse of local changes for municipal bonds managed in Investortools Perform.”  added Jeff Curie, CEO of Bitvore.

The new integrated product will be available starting July, 2016.

What Users Should Expect for GASB 67/68 in CreditScope

The Governmental Accounting Standards Board (GASB) in 2012 released new accounting standards for public pension plans and participating employers. These standards, GASB Statements No. 67 and 68, have substantially revised the accounting requirements previously mandated under GASB Statements No. 25 and 27.  With GASB 67 effective for plan fiscal years ending after June 15, 2014, and GASB 68 effective for employer fiscal years ending after June 15, 2015, we began to see governments reporting under the new standards with their FY2015 audits.


Given that we have now seen a reasonable sample of governmental financial statements implementing the new GASB 67/68 reporting standards, we are pleased to announce that CreditScope now includes pension-related data fields for the City, County and School District sectors which will better accommodate the new GASB 67/68 pronouncements.  The new data fields have been added to accommodate both Single/Multi-Employer Agent plans and the Multi-Employer Cost Sharing plans for the City, County and School District sectors.  Merritt plans to populate the new pension-related data fields retrospectively for FY2015 City credits with populations exceeding 100,000 and County credits with populations exceeding 500,000.  For all other City, County and School District credits that have been standardized (for FY2015) prior to July 2016, Merritt will update the new pension-related data fields with FY2016 financial information.  A CreditScope System Update with a minimum Build Number of 1235 must be applied in order to see the new pension-related data fields.

You can check the Build Number of your CreditScope system by clicking on the [Maintenance] link of the left-bar navigation tree of the main screen. Then, click on [Advanced] and [About]. In the resulting pop-up box, check the line that reads: “Build”. If the Build Number is not at least 1235, you may wish to consult with someone in your IT department to inquire about scheduling a software system/data update in order to see these new fields.

Updating the City, County and School District sectors with the new pension-related data fields will be the first step of many.  The next step will be updating the State sector software to include pension-related data fields that mirror the new City, County and School District pension presentation (including support for the new GASB 67/68 pronouncements and separating the Single/Multi-Employer Agent plans and the Multi-Employer Cost Sharing plans).  The State sector pension-related data field changes will be a significant and necessary enhancement to the usability of the data provided under the formerly used GASB 25/27 pronouncements.  During the transition period, certain information previously reported in the State sector pension-related data fields, will be unavailable or inconsistent until the conversion is completed and your CreditScope System Update has been applied.  For that reason, as with the City, County and School District changes released in CreditScope Build 1235, a CreditScope System Update will be strongly encouraged once the State sector changes have been released.  Although the Build Number and Date of that release has yet to be determined, we will be implementing these changes over the coming months.

We envision the next step (after mirroring the State pension-related data field layout to the City, County and School District pension-related data field layout) to be the breakout of Multi-Employer Cost Sharing plans to its own plan level in CreditScope.  While the development of this step is underway, the details and release date are yet to be determined.  

Contact us with your questions or to schedule a demonstration.

Investortools (630.553.0040)  or  Merritt Research Services (319.861.5400)