Read article and learn about:
- Handling the ever-increasing amount and complexity of data
- Treating regulatory obligations as a catalyst for business growth
- Regulation as a business catalyst for expansion and innovation
- Agility as key for managing data and governance
About the author:
Benita M. Warmbold is Senior Vice-President and COO of CPP Investment Board, Toronto, Canada
Benita Warmbold is responsible for the treasury, investment risk, operations, investment finance and technology functions. Prior to joining CPPIB, she spent 11 years as MD and CFO for Northwater Capital Management Inc. where she was a member of the Senior Management Team.
The global investment management industry faces many challenges. In this recurrent CXO Corner relay column, we ask top executives to point the way ahead, sharing their views and best practices for meeting the challenges.
Journal: Thank you for taking over the CXO relay from Michael Jarzabek, Managing Director at LBBW Asset Management. For this edition featuring data management, please share with us what you see as the main issues for investment management organisations when handling the ever-increasing amount and complexity of data while meeting new data governance demands. How do you reconcile all these aspects?
Benita M. Warmbold: At CPPIB, we treat regulatory obligations as a catalyst for business growth rather than as an obstacle. We have a very long investment horizon and fund growth certainty to take into account. So we try to manage our data to support investment and operational processes to stand the test of time and the test of growth. Fortunately, there’s a fair amount of synergies between our approach to managing data complexities and the regulatory changes that are happening in the OTC derivatives processing space. For instance, the Legal Entity Identifier (LEI) required for each of the entities and securities processed fits in perfectly with our data strategy. Having a unique identifier allows us to know our true exposure across all the asset classes, enabling us to quickly drill down into specific portfolios, sectors, geographies and product types. This is where regulation in some ways acts as a business catalyst for expansion and innovation.
Journal: Speaking of synergies, with data management involving every single part of the organisation, how do you recommend measuring return on investment (ROI) in resources to ensure maximum outcome while achieving strategic goals?
Benita M. Warmbold: Establishing a strong foundation for managing data and governance is critical. One of the key success indicators is agility. The other indicator we would focus on at CPPIB, given our long investment horizon, is scalability. And the last one for us is integration. For a global asset management firm, integration is critical. Whether you’re in trading, operations, risk, performance, or research, you have to ensure that all these areas are integrated seamlessly into your data management platform. A lot of extra effort is required if you have a siloed approach to obtaining data in each of these areas instead of one integrated way of delivering data to the organisation. Data is the lifeblood of any asset management organisation and good data is critical to the investment decision-making process. It’s also crucial for understanding and averting the risks across a very diversified portfolio. A formal data management programme ensures the right level of transparency in the various investments and also the right management attention.
Journal: If ensuring clean, correct and timely data is essential for correct decision-making and managing risk, can you describe to what extent choosing the right data management software can help achieve this?
Benita M. Warmbold: The investment management system is definitely one of the key elements you need to avert risk. It has to be integrated and it has to be scalable, flexible and adaptable to your changing needs. The one thing I’ve learned in my years in capital markets is that new products are constantly coming on stream and you have to deal with this continuous change to handle the data, whether it’s for benchmarking calculations or trading processes. It’s best to manage all this through one system. Otherwise you end up with manual workarounds, which just increase operational risk and reduce agility.
Journal: In your efforts to contain operational risk, have you found that defining a data governance framework is a good way to engage business and IT in the data management process?
Benita M. Warmbold: You need the right internal expertise on the data content side and people who understand the business processes and changes that have to ensue as a result of data coming in. It’s critical to have the right level of skill to partner with the risk, investment and operational areas to ensure that you fully understand how the data is being used and managed. If, for example, we calculate performance benchmarks that are created internally, we must have good governance to instil confidence that the information has the expected quality and that it’s up-to-date and error-free. Data governance is key. Because investment management firms all have different needs, you have to rightsize it and tailor it to your own organisation’s investment approach.
Journal: If data governance is key and data management a prime focus for organisations that have invested in the technology to build a stronger data capability, how in your view can an integrated data management solution reduce total cost of ownership (TCO)?
Benita M. Warmbold: This is difficult. I’ve talked to others about how they’ve approached this and you’d be surprised how many people buy exactly the same data in multiple parts of their organisation. This is why we have a single point of reference in our data management group where data can enter the organisation. Data is not cheap. Data is a precious resource and you want to make sure that the best possible skill set is employed in your data acquisition effort. Negotiating a contract with a data vendor is very specialised compared to negotiating with almost any other kind of vendor. So you’d better know what you’re doing and have these particular skills and expertise.
Journal: With that in mind, what over the longer horizon do you personally regard as the main business growth opportunities and IT challenges facing investment management companies?
Benita M. Warmbold: Business expansion opportunities will continue to drive the industry, and the task will be to go more and more global over time. Being a niche player in a local market won’t necessarily give you those opportunities. Growth will favour those firms that proactively manage their risks. By risks I don’t just mean the risks in their portfolios – also the risks in their operations, their reputation and their brand. As far as how this works with regard to technology, investment management is such a high volume, fast-paced business that it’s always been one that’s heavily invested in technology and I would not expect that to change. I think you’ll continue to see a lot of emphasis on data management and investment risk. Also, people are looking at the cost of running these complex organisations and how you deliver results in as cost-effective a way as possible.
Journal: Drawing on your 25 years of professional experience in the finance industry, how do you stay attuned to new developments and trends in your own particular areas of interest?
Benita M. Warmbold: Top financial industry conferences are a great way to connect with the global asset management community and so I go to forums like that and talk to people in our industry. I also try to think about what’s happening in other industries and look at the challenges we face and then look at how people might tackle these in other industries. So I try not to limit my knowledge and information to just our industry. I think we can learn from what others do. Operational risk exists in every organisation; you can learn great practices from others and apply them to an asset management organisation. So I try to make sure that I’m not just talking to people in my industry. I enjoy hearing about new concepts and models and like to make them real and actionable.
Journal: Thank you for your insights. With a view to continuing the dialogue, whom would you like to hand over the relay to in the next issue of CXO Corner?
Benita M. Warmbold: I would like to hand over the word to Janine Guillot, Chief Operating Investment Officer, CalPERS, who I’m convinced with her wealth of professional experience will throw some interesting light on what she regards as the most pressing challenges facing the investment management industry.