The Asset Manager’s Challenge
Overwhelming volume of data
Given the plethora of data circulating the financial industry and the amount that asset management firms consume, it is no surprise that they are struggling to keep up. As per today’s increasingly digitized world, data flow into your organization is more akin to a build-up of waves that inevitably develops into an overwhelming tsunami. Without an adequate way to manage data, having more data is like having less. This constant data injection results in problems such as inability to find resources, duplication of data assets, untrustworthy and unusable data contaminating the information needed making them highly difficult to distinguish. Organization’s data landscapes as it is are already disjointed, existing in several silos across different departments, hence adding more data to manage at such a rate that worsens the problem.
Untrustworthy and unusable data
When raw data enters your systems, it is in various forms that are often unstructured and unusable. Furthermore, there is no assurance that the data is valid and accurate. This especially becomes a problem for asset management, when data is procured from a multitude of sources and third-party organizations. Given the decision-making nature of asset management, the value of having correct information and the major issues posed by unreliable data cannot be understated.
As par for the course, working in the financial industry necessitates conducting responsible practice. However, with today’s data demands ever increasing it is very easy for individuals within your firm to make mistakes, which may be very minor but extremely costly nonetheless. The industry standards of finance are very complicated, as asset management firms are often subject to multiple sets of stringent regulatory requirements across the globe.
The Global Investment Performance Standards (GIPS) serves as the leading standard by which asset management firms for performance reporting. Whilst buy-side firms must follow this, depending on their operation, they may be subject to other regulations such as the MiFID, ASIC, CSRC or SEBI, among a multitude of others. In addition to this, another layer of complexity is added as investment funds must consider regulations regarding liquidity, risk-reporting, and investments in derivatives. The International Financial Reporting Standards 8 (IFRS 8), Basel III, and Solvency II impose further compliance demands that undoubtedly affect the business models of firms.
These regulations are fully aware of, and designed in response to, the explosion of data that organizations face and the exposed, vulnerable data this entails, to force financial institutions to adapt accordingly. Therein lies the difficulty for investment funds as they must be aware of which regulatory requirements they must adhere to, know how to be compliant within the constraints they must operate in, and execute this whilst remaining profitable.
Regulators are not the only ones calling for increased transparency in the workings of buy-side firms. After the financial crisis of 2008, clients are more alert to the details of the financial institutions’ operations. Hence, in the asset management field, there is an even heavier emphasis on reporting.
The investment fund clientele is calling for greater functionality, granularity, and detail in their periodic reports. High net worth clients, especially, are demanding increased specialization. Portfolio analysis, performance calculations, and risk analytics, in particular, have turned out to be the most important areas of focus in order to win and secure client trust.