Building fixed-income portfolios has long been a challenging, time-consuming process for investors and their advisors, with numerous, inter-connected variables and constraints. How could BondIT help?
BondIT developed a cloud-based, machine learning algorithmic solution, which can handle any set of investment requirements and produce custom portfolios at speed.
Empowersadvisors with completely customized portfolios, optimizing financial decisions
Cutsthe time taken to create tailored portfolios from days to minutes
30%less risk for similar yields compared to other solvers tested
Business challenge story
With a multitude of factors to consider and many options available, deciding how and where to invest your money can quickly become complex and inefficient. Nobody wants to lose their hard-earned cash getting caught out by a bad investment decision, so doing your research and choosing the right assets to match your constraints is essential, but this can often be difficult and time-consuming.
Dr. Hillel Raz, Chief Scientist at fixed-income algo-advisory services provider BondIT, elaborates: “The fixed-income market encompasses millions of assets worldwide, each of which has numerous parameters, some of which change constantly. To further complicate matters, all of these assets and the variables impacting them are interconnected, creating a multi-dimensional, convoluted landscape.
“Every investor has different requirements for their portfolios. For instance, some investors may be willing to take on a significant amount of risk, while others focus more on the yield they could make relatively safely over a number of years. To find the right investment, investors seek out help to navigate the complexities of this multi-dimensional framework.”
In the past, people would go to a bank or financial advisor with their requirements, and then wait days for the advisor to come up with investment ideas.
Amit Godel, Chief Technology Officer at BondIT, notes: “The financial software available to advisors was slow at constructing possible portfolios, and only delivered a limited number of off-the-shelf options—so clients weren’t offered portfolios tailored to their individual needs.”
Initially, BondIT relied on matrix laboratory (MATLAB), a multi-paradigm numerical computing environment and fourth-generation programming language, to support fixed-income portfolio generation. Recognizing that the solution’s performance and capabilities were limited, the company knew it could do better.
To accelerate and customize the construction of fixed-income portfolios and optimize its fixed-income asset-management services, BondIT set out to find a more reliable, higher-performing optimization solver that would support real-time dynamics and better address static market constraints.
Creating custom portfolios at speed
BondIT evaluated several offerings before selecting IBM® ILOG® CPLEX® Optimization Studio to take its fixed-income portfolio services to the next level.
Dr. Eyal Kenig, Senior Algorithm Researcher at BondIT, comments: “We put various algorithms to the test to see how well different solutions could solve problems and ILOG CPLEX Optimization Studio consistently produced the best results, while offering high performance, speed and reliability. We were also attracted to the fact that IBM could provide a broad network of support.
“Throughout the implementation period, the IBM team was great at responding quickly and coming up with solutions to complex issues. Getting the solution up and running was a collaborative process, and the rich online resources that IBM offers were a great help.”
Using the ILOG CPLEX Optimization Studio software, BondIT developed a unique mixed integer framework that sets up numerous linear and nonlinear constraints for resolution by a quadratic solver. Now, the company is able to solve for risk-optimized portfolios that best fit within specified constraints. The CPLEX solution provides the necessary mathematical and mixed-integer programming capabilities, working in conjunction with the proprietary BondIT framework to optimize fixed-income portfolios.
“By harnessing the ILOG CPLEX Optimization Studio tool within our framework, our platform can find the optimal solution within the constraints,” says Hillel Raz. “If a perfect solution is not feasible due to the combination of constraints and market conditions, it can relax constraints to provide the closest fit for any set of portfolio requirements.”
BondIT deploys the IBM technology in the cloud, and delivers its own fixed-income solution for wealth and asset management to financial business clients through a software as a service (SaaS) delivery model.
“With a cloud-based solution, we can scale up our use of it as required, to accommodate client needs,” adds Amit Godel. “In addition, our customers benefit from platform enhancements immediately.”
Disrupting the fixed-income market
By deploying ILOG CPLEX Optimization Studio, BondIT equipped itself with a lightning-fast solution to support the creation of customized portfolios in seconds—leading advisory services into the machine-learning era and breaking the mold of the fixed-income market.
“With the help of IBM technology, we’ve brought a totally revolutionary platform into the fixed-income market—we haven’t found any other company that can provide the same algorithmic power and speed for the same price as us,” says Dr. Eyal Kenig.
“Our solution enables users to construct portfolios that are much more personalized to customers’ specific requirements, empowering them to invest more successfully. At the same time, the solution significantly cuts the time taken to create portfolios. Customers no longer have to wait weeks for investment recommendations—they can sit down with advisors for an hour and run through several portfolio options then and there.”
As well as vastly accelerating portfolio construction, BondIT’s solution significantly minimizes the risk for investors.
“With the help of a powerful, accurate, and flexible solution, advisors can conduct a more thorough portfolio selection process and help their clients make wiser financial decisions,” notes Dr. Hillel Raz. “Advisors can determine, quickly and easily, whether fixed-income portfolios are within their sought-after constraints and make sound decisions based on this knowledge. Overall, our solution framework coupled with the IBM solver reduces the risk of investments by close to 30 percent for similar yields, compared to other solvers tested.”
In addition, the solution cuts the number of broken portfolio constraints by approximately 50 percent, boosting usability and flexibility.
Together with BondIT’s expertise and the surrounding technology, ILOG CPLEX Optimization Studio plays a significant role in the success of BondIT’s solution.
“The main advantage of the IBM technology for us as a startup was fast time-to-market, as well as its ability to handle many different types of variables and objectives, control numerous parameters, and handle infeasible problems—these features play a key role within our framework,” comments Amit Godel.
Dr. Hillel Raz concludes: “Thanks to IBM technology, we can deliver portfolios tailored to meet the specific needs of each investor in minutes rather than weeks—empowering people to make faster, better informed investment decisions.”
Founded in 2012, BondIT is a fixed-income advisory services provider in Israel, and employs around 35 people. The company provides a platform that constructs efficient smart fixed-income portfolios and drives sales by empowering investment managers and advisors with personalized, data-driven investment recommendations. The company has developed an algo-advisory solution that helps to construct tailored, intelligent portfolios for customers, with on-demand, timely and comprehensive reports.
- ILOG CPLEX Optimization Studio