FundsTech Forum panel: Data and utilities – why is the funds industry so terrible at creating a utility?

In the second panel at FundsTech held in London today, experts examined various initiatives designed to harmonise and standardise data in the funds industry. The topic industry experts attempted to address was: Why the industry is so poor at creating a central utility that is much needed to create efficiencies and lower the operating and regulatory costs in asset management?

Moderated by Nick Fitzpatrick, editor, Funds Europe, the session had Bill Gourlay, managing director, Independent Consultants Network; Simon Swords, CEO, Fundipedia; Thomas Tilly, senior economist, European Fund and Asset Management Association (Efama) and Revel Wood, co-founder, ONE group solutions as speakers.

In response to the moderator’s question on what problem that a utility could solve, Swords affirmed that the “good old days are over”. “Things have changed in expenditure around systems and technical legacy issues in the last decade. Asset managers have now realised the need to consolidate and the focus is on achieving more technically for less. Utilities solve the problem of spending too much money on data, and sensible understanding of data and leveraging AI are helping in getting rid of PDFs.”

The panel also discussed their problems with data handling in old-fashioned ways. For eg, NAVs are still sent by email.

Competition between firms – “vested interests” as the moderator put it – has always been cited as an inhibitor. Championing the need for eliminating unnecessary competition, Swords said that he believes firms “can do cool stuff together”.

While the panellists agreed that data management is a pressing problem, according to Bill Gourlay, there is “no point of having utility for utility’s sake”.

Thomas Tilly emphasised the explosion of market data costs in recent times – a 75% increase over the last three years, he cited. The problem, he pointed out, has only been compounded by regulation. “ESG data firms are required to handle today data is nothing short of a “tsunami” and utility could be beneficial.”

Amid the discussion on challenges for utilities, Gourlay highlighted the problem of “derailment efforts” – a section of the industry believes it would be helpful if the efforts undertaken did not progress, as a part of a corporate objective. The panellists agreed that a huge part of the problem is “competing in the wrong space”.

The spirit of collaboration over competition was also echoed by Wood who spoke about a non-profit initiative he is associated with that aims to remove friction and data redundancy and waste through data and template standards for the asset and wealth management industry.

According to Tilly, commercial classification systems are a bit of a “black box”. Giving an overview of Efamas’ current initiatives such as the Fund Classification System, he described it as “a classification scheme of funds controlled by the funds industry”. The classification process is conducted by neutral, third-party administrators based on transparent criteria, he added.

As an example of working with the industry to bring positive change into practice, the Investment Association ( IA) and Fundipedia joined forces in 2021 to develop the Common ShareClass register.

The Common ShareClass register collects data from different asset managers, making switching between investment platforms easier for investors. It contains listings for over 6,000 individual funds from 130 retail-focused investment firms and commonly available fund classes to assist with share class conversion processing by investment platforms and administrators.

Recently, the firm introduced Fundi Workflow, a platform that accelerates product development for asset managers, addressing processes like fund launches, share class approvals, mergers, liquidations, and changes.

Endorsing an “open banking approach to data in the asset management space”,  Swords said: “The idea is to create a space for asset managers to have conversations on key topics. Asset managers need not solve problems in isolation when collaboration is more beneficial.”

In conclusion, on the topic of regulatory intervention in the field of utilities, the panellists agreed that ideally, the lead should be taken from within the industry.

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