Portfolio Optimization Tool – Dutch pension fund

Context
Request was received from a Dutch Pension fund for a bespoke solution for Portfolio Optimization. Upon undertaking a consulting assessment it was discovered that there were other issues with the Portfolio Optimization process such as use of multiple spreadsheets, absence of transactional data master and multiple manual processes which not only resulted in errors but rework and a long lead time for responding to the market developments.

Solution
A bottom up approach involving redesign of information and application architecture was undertaken decommissioning the spreadsheets and consolidating the various data sources into a single repository along with synchronization and automated scheduling of data transformation and loading. The tool runs on top of the consolidated architecture and uses the heuristics of Simulated Annealing, Tabu Search and Genetic Algorithm to arrive at the optimal profitable portfolio.

Result
The bespoke Portfolio Optimization solution enables the portfolio managers to arrive at the most profitable portfolio while meeting all business constraints.

The redesigned architecture has resulted in operational savings of Euro 375,000.00 per year due to :

• Elimination of manual processes and errors
• Elimination of rework
• Improving the processing time
• Enabling the portfolio managers to continuously implement enhancements to the calculation algorithms