The attempt to aggregate and normalise the ever-increasing volume of information being generated can easily turn into a massive undertaking that is beyond the core competencies of investment firms. As a result, more investment managers are turning to their operational outsourcing partner to provide a sophisticated data management solution that frees them to focus on what they do best, managing their assets and servicing their clients.
The key to a fully efficient data management model involves capturing critical data generated from the front-, middle-, and back-office functions. A fully comprehensive data management process involves a three-step sequence. First, data is aggregated by pulling together internal and external data across various independent systems and products, then normalising (or validating) the data to ensure consistency, thus creating a single data set across the entire firm. Second is data governance, or quality control, which involves normalising the internal and external data feeds to ensure the data is clean and error-free. Lastly, the presentation of the data is delivered back to authorised parties in a meaningful context through various methods. While aggregation and governance are standard practice, the presentation of the data is often an afterthought, but it can exponentially enhance or detract from the first two steps.
Gaining a meaningful understanding of data across their firm provides managers with several strategic benefits. First, it enhances the ability to compete aggressively in an increasingly complex and challenging market. Data management allows investment managers to better understand their clients, see the inflows and outflows of their investments, and understand the impact of the decisions they make, thus providing clear insight into what drives their business and performance. Second, effective data management can assist in the escalating need for accuracy, transparency and risk mitigation at every point of a manager’s business. There has been a push for greater transparency from compliance and regulatory quarters as well as from investment managers’ clients. The latest market changes have inevitably only increased the need for investment managers to have access to tools that will allow them to monitor activity, maintain compliance, and research data related to clients and portfolios, and fully identify and proactively manage risks that can threaten their business. Lastly, managers are in a better position to enhance their clients’ satisfaction because a flexible reporting system can allow managers to present different analyses catered to the needs of their various investors.
Managers are applying best practices when putting the power of data management to work. Working with a single provider that can administer investment managers’ full array of investment products provides a more integrated operating environment. This in turn helps ensure consistency and standardisation, streamlines communications, and means managers can more easily obtain a more holistic and accurate snapshot across their business.
Another best practice is to develop a stringent quality control process. High-quality data governance programmes employ leading-edge technology coupled with tight supervision to check and control incoming information in order to maintain high levels of data quality.
Lastly, neither data nor technology is meaningful in itself. Technology is a tool that gathers, sorts, and delivers data, but human reasoning and analysis are necessary to understand information in context, discern cause and effect, and make intelligent decisions. Reporting needs to capture both high-level trends in a dashboard view, but also provide the flexibility to drill down and slice and dice data in multiple ways, thereby making the information relevant and useful to managers.
The complexity of new financial products, increasingly stringent regulatory controls, evolving client demands, and the costs associated with managing data in-house will continue to drive the trend among industry leaders to enhance their data management capabilities in order to respond quickly and competitively to the challenges ahead.
• John Alshefski is senior vice president at SEI’s investment manager services division
©2009 Funds Europe