Parametric Portfolio Associates
Seattle, Washington
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"ILOG CPLEX has proven to be an invaluable tool for supporting our market expansion and preserving our high levels of service. We will continue to use it, as it meets our demanding requirements."

David Stein Chief Investment Officer Parametric Portfolio Associates

Business
Parametric Portfolio Associates provides portfolio management solutions to institutions and wealthy individuals. Its tax-efficient investment strategies help clients build and preserve capital by maximizing overall investment return. Parametric relies on automated systems that factor in risk, return, taxes and transaction costs to continually evaluate and rebalance portfolios.

Goal
Market uncertainty, changing tax laws and more-complex compliance have intensified trading and disclosure demands. Parametric needed to automate the process of determining the best mix of tax-efficient investments in a consistent and timely manner. This required effectively modeled portfolios, using proven algorithms.

Application
Parametric's solution automates the optimization of a broad range of portfolios, from $500,000 to $500 million. Evaluation incorporates cash level; capital gains and losses; risk; and time since last optimization. It also considers investor needs and risk tolerance. ILOG CPLEX provides reliable and efficient analysis that allows Parametric to improve customer service and serve a larger customer base.

Results
Compared with passive management, Parametric estimates that its portfolio optimizer increases after-tax returns by up to 1.5% per year. As 95% of its competitors do not factor taxes when rebalancing portfolios, this affords Parametric a sizeable advantage. The optimizer also improves stability, quality and speed of analysis.

Technical
ILOG CPLEX identifies a tax-efficient mix of investment options for individual portfolios. ILOG OPL Development Studio simplifies the process by quickly modeling problems and converting them into code used by ILOG CPLEX.