ONLINE FINANCIAL SERVICES NEWS

Sony Bank Advises Investors Online
ILOG optimization helps pick funds

Now individual investors in Japan can get advice online, using Sony Bank's new MONEYKit, a Web-based self-service asset management simulation tool using ILOG CPLEX and ILOG Solver.

Started in 2001 by Sony, Sumitomo Mitsui Banking and J.P. Morgan Chase, the new Sony Bank operates solely online and hopes to attract 400,000 customers within its first three years of operation. The bank offers loans, investment trusts, automatic payment and other services, and plans to provide foreign currency-based deposit accounts, credit card services and housing loans.

MONEYKit is a set of tools for financial planning, and uses two main components: the Morgan Asset Projection System (MAPS) and the Mutual Fund Implementer (MFI). ILOG CPLEX and ILOG Solver work together in MFI to rapidly select the best combination of funds from a tremendous number of possibilities. Applying math programming optimization technology, ILOG CPLEX narrows a customer's target fund range from all the available funds, using criteria entered by the customer. ILOG Solver uses constraint programming to examine all the possible fund combinations and extract the optimal one.

ILOG-powered MFI works in concert with MAPS, which is a J.P. Morgan Chase tool for forecasting investment performance. The funds recommended by the ILOG optimization software are listed as positive or negative. The positive funds improve efficiency in asset classes suggested by MAPS, while the negative ones would improve efficiency if they were removed from the asset classes.

With intelligent software like MONEYKit, a user-friendly website and Sumitomo's ATM network, Sony Bank is targeting deposits of $5 billion by 2005.

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Parametric Optimizes Portfolios
ILOG CPLEX finds tax-efficient scenarios

More clients and expansion into new markets have resulted from the use of ILOG CPLEX by Parametric Portfolio Associates, a pioneer in the field of tax-efficient investment.

Parametric manages investments totaling more than $5 billion, and is widely recognized as a leader in portfolio management. Its success is based largely on optimization, which allows portfolio managers to quickly evaluate a large number of sophisticated investment scenarios in weighing tax costs against risk and return.

ILOG CPLEX evaluates the scenarios and recommends the best investment strategy for Parametric's customers. It also supports the firm's expansion into new territories. Traditionally, Parametric served large institutional customers and wealthy individuals with accounts in excess of $10 million. Recently Parametric started serving individual accounts at significantly lower minimums.

ILOG CPLEX enables Parametric to achieve greater portfolio optimization, allowing the firm to handle a growing list of clientele and new tax laws. The firm currently manages 2,500 portfolios, and expects to see its business grow substantially.

"Parametric's high degree of customization and unique focus on tax-efficient investing require specialized optimization software," says David Stein, chief investment officer at Parametric. "When you focus on tax costs, the best portfolio for each investor depends on his individual investment flows. With ILOG CPLEX, we feel we have the technology to support a market expansion, while preserving our portfolio customization results and high levels of service."

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Pioneer Investments
ILOG CPLEX finds tax-efficient scenarios

A leading innovator in the mutual fund industry. Pioneer Investments is developing an ILOG CPLEX-based asset liability management (ALM) system for optimizing investment portfolios at its European offices. Pioneer Investments manages portfolios of over $95 billion. The ALM system will be used by the portfolio managers at Pioneer Investments' offices in Dublin, Milan and Boston.

The system uses ILOG CPLEX for explicit optimization in finding best portfolio allocation to meet liability constraints and minimum return guaranteed.

Optimizing portfolio allocation
The balance sheet of a company or of a pension fund lists items that include benefits, long and short-term debts, and equities. The goal of the ALM system is to optimize the way assets, or investments, are allocated.

Further complicating the process are constraints such as regulations, asset classifications and variable targets. ILOG CPLEX enables Pioneer Investments to model a portfolio and then optimize portfolio breakdown maximizing the wealth at horizon while minimizing the risk of not meeting the liabilities. The goal of the ILOG CPLEX part of the system is to determine the optimal weights for the 15 asset classes, including European equities and U.K. bonds.

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