Instead of being viewed as a cost centre, data management should be centralised, while data itself should be used to add value and make a business more competitive, says Mario Mantrisi of Kneip.
The asset management industry is quickly realising that it has a data management problem. Unprecedented regulatory change over recent years, with numerous new rules regarding transparency and reporting, means that data has become a business-critical, board-level issue.
What many industry participants are now waking up to, however, is that data management represents a significant opportunity as well as a serious challenge.
At present most asset managers have understandably been focusing on the short-term issue of dealing with specific pieces of regulation. They have prioritised developing solutions that allow them to hit immediate compliance deadlines.
However, in the medium and long term, firms will need to become more strategic in how they approach their data. Instead of being just a cost centre, data management should be a centralised function that allows information to be used to add value and allow a business to compete more effectively.
The Alternative Investment Fund Managers Directive (AIFMD) is a good example of the challenge being faced by the asset management industry. Now that the AIFMD authorisation deadline has passed, firms are faced with the challenge of how to best collect, validate and share a large amount of different data points from a wide range of internal and external sources.
COMMON ISSUE
Collecting, validating and sharing data is a common issue being faced by the asset management industry, as investment professionals are fundamentally knowledge workers. They need good information to use insights to add value and make money.
But while good data helps lead to good decision-making, bad data can lead to poor decision-making and potentially disastrous consequences.
There are three main challenges to good data management being experienced by the asset management industry, but if addressed, these issues can quickly be flipped to become a competitive advantage.
First, current data-sharing processes tend to be antiquated. Many asset managers have legacy data systems that have been built up over the years which are often ill-suited to work together, or are simply obsolete.
Despite the huge leaps forward financial services firms have made in terms of technology, the majority still transmit data by using excel spreadsheets that are sent and received via email.
This means that time-consuming processes have to be undertaken to collect and share the information, followed by the need to replicate data many times, potentially compromising its integrity. If a firm has numerous counterparties and delegates this can result in a great deal of time and money wasted.
Larger fund management houses have to interact with between 50 and 100 delegates, making the impact on the company profound. Data is received from a large number of sources in numerous different ways at varying times, using non-standardised formats with no way of easily checking information for accuracy.
Aside from dealing with the logistical challenges, there are inherent security issues that arise from transmitting data in spreadsheets via email. The risk that this exposes asset managers to is perhaps underestimated, however a security breach could cause losses and would certainly bring the current reporting systems into focus.
Second, current data management practices make it difficult for asset managers and their counterparties to audit their own data. There is no easy way of knowing the data that has been sent, if or when it has been changed and why, or when it has last been validated for accuracy.
This means that for most firms, the process of pulling together data and checking its integrity can be time-consuming. If there is a suspected issue with the data, or the asset manager is being audited, the costs can quickly increase.
DATA OWNERSHIP
Third, most asset managers do not take ownership of their data. Instead they rely on third parties such as fund administrators and other delegates to manage it.
Asset managers are under greater regulatory pressure to have visibility over their delegates. As such they should not pass the responsibility for management of their data on to fund administrators. This only adds greater potential for inefficiencies, with more chances for data to be compromised or held insecurely.
To address these three major issues and turn data management from a business headache to a business advantage, the asset management industry needs a way for asset management firms to take ownership of their own data. They need a platform that makes it easier for them to share information in a secure, auditable and efficient manner that guarantees its integrity.
The advantages would be clear in terms of improving security, building in efficiencies and reducing costs. Professionals in asset management tend to spend a tremendous amount of time collecting data, replicating, reproducing and merging information. They spend less time than they should using their expertise to serve their clients.
But furthermore, firms who take ownership of their own data could use this information for greater purposes than just meeting short-term regulatory requirements. In the current regulatory climate, investors rightly expect their fund managers to be wholly transparent and be able to show how they use information to make the best decisions.
As a result, funds that have the ability to easily collect, analyse and share information that is devoid of errors will be at an immediate advantage. Being efficient, secure and transparent across their business is exactly what investors expect to see.
There is therefore a direct link between data management and an asset manager’s ability to generate performance and attract new capital from investors. The asset management industry is slowly realising that good data management has the potential to become a true competitive advantage.
Investment firms would be well-advised to look to the future and implement new systems now. By doing so, they will ensure that they are not just meeting the requirements of specific pieces of regulation, but make their data work for them over the long term.
Mario Mantrisi is chief strategy and research officer and senior adviser to the CEO, at Kneip
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