Digital technology has led to enormous growth in the creation and storage of data. But in the funds world, difficulties concerning standardisation threaten to limit the exploitation of this resource. A survey by Funds Europe and Clearstream assessed the issues.
Last year, researchers at IBM estimated that human beings were producing 2.5 quintillion bytes of data every day. To put that in perspective, a quintillion – which is a one followed by 18 zeroes – is a measurement usually used in such contexts as counting the number of molecules in a human brain or calculating the tonnage of the earth. Since global demand for smartphones, social media and location-based services continues to rise, daily data production is rising too.
Technology firms in Silicon Valley and elsewhere have shown that applying modern analytical tools to very large datasets can lead to impressive discoveries in genomics, healthcare and even the prediction of earthquakes. Many professionals in the funds industry hope to apply similar techniques to the data collected or produced by fund managers.
But the application of so-called “big data” to the funds world is hampered by a lack of standardisation in the industry. This report, the third in a series produced by Funds Europe in association with Clearstream, asks if the promise of “big data for funds” will ever be realised.
The universe of mutual funds in Europe is made up of thousands of products from a myriad of asset managers. Many products have similar characteristics, but, as of today, the data about them that is given by fund managers to distributors and investors is not standardised. One firm’s way of describing its products differs from the next firm’s, meaning data cannot easily be compared.
We asked respondents if they believed that standardising the data given by fund companies to distributors and investors should be a priority for the industry. The result was an emphatic yes. Fifty-six percent of respondents strongly agreed that standardisation should be a priority while a further 26% simply agreed (see figure 1, previous page). The total of 82% who gave their assent to this question indicates strong support among the industry for initiatives to standardise this kind of fund data.
But standardisation is not an easy target to achieve. The funds industry in Europe is fragmented between lots of different asset managers of various sizes, each with their own separate ways of working. We asked our respondents if they thought the funds industry could achieve a significant level of standardisation of fund-related data, and how long this would take.
The most popular answer was “in two to five years”, which was chosen by 48% of respondents (see figure 2). A further 24% thought it would take longer – between five and ten years – while a pessimistic minority (11%) said “it will never happen”.
There were some positive responses. Eight percent of people who replied to this question said they felt a significant level of standardisation of fund-related information had already been reached.
What are the obstacles to achieving standardisation? We asked respondents to select from a list of factors. The most popular answer was “fund companies do not have an incentive to change”, which was chosen by 47% of respondents (see figure 3; respondents could choose more than one factor in this question). The second-most popular answer was “the industry is too large/complex” while the third-placed factor was “lack of supportive regulation”.
If respondents selected “other” as a factor, they were asked to describe what obstacles they had in mind. Some of their quotes appear on arrows in this report. These responses identified an interesting range of challenges, including a lack of senior-level commitment to standardisation efforts, the requirements of consultants and investors for customised data, and the problem of decentralised, mismanaged and sometimes differently designed databases that exist even within the same company.
Given these challenges, standardisation initiatives have a daunting undertaking ahead of them. We asked respondents to tell us what qualities these initiatives should have. The most popular option, chosen by 64% of respondents, was that standardisation initiatives should be comprehensive (see figure 4, previous page; respondents could pick more than one answer for this question). The second-most popular quality was a low cost to participate, followed by “easy to understand”.
The 6% of respondents who selected “other” were asked what quality they had in mind. Their comments included the views that standardisation initiatives should reduce workload, include incentives to participate, and include manufacturers, distributors and data aggregators, such as Morningstar.
Which of the existing funds industry standardisation initiatives are viewed most favourably by our respondents? To find out, the survey sought responses to four existing initiatives that are aimed at improving standardisation of some element of the funds business.
The openfunds initiative, founded by a group of Swiss banks and fundinfo, a platform, was the top choice as it was viewed favourably by 32% of respondents (see figure 5 on page 7; a mistake in an early version of the survey rendered openfunds as “Open Fund”). Fund XML, an initiative that uses the computer language XML, was viewed favourably by a quarter of respondents, while Open Terms by Metrosoft was viewed as favourable by 7% and Door, a platform for due diligence for funds, was viewed as favourable by 5%.
The proportion of respondents who had not heard of the various initiatives was generally high – for instance, 29% of respondents were unaware of the top choice, openfunds. These results indicate that the standardisation initiatives have some work to do to build recognition of their programmes.
For part two of the report, click here.
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