Read article and learn about:
- The need for consistent data across global operations
- Overcoming the data challenge with global operations
- The importance of an integrated platform
- How an IBOR connects all the (data) dots
- Feeding your front office with the data they need
About the author:
Marc Mallett, Vice President of Product & Managed Services, SimCorp North America
Marc Mallett is responsible for leading the North American product team. Marc has 20+ years of experience in the financial markets and has worked directly with asset servicers, asset managers, investment technology providers and professional services firms. He has held key roles at Northern Trust, Fidelity Investments, Navigant Consulting and Citisoft.
As trading data volumes swell and regulators require ever more transparency, the business models of global firms are getting ever more complex. While many elements contribute to an efficient global operating model, one central element is your data. Without mastering it, you will not be competing on a level playing field. Ensuring that your data is accessible and reliable anywhere, anytime gives you the competitive advantage you need to succeed on a global scale.
The data challenge
A major challenge facing investment management firms when expanding globally is the integration of different systems and all the data that comes with it. Often, there is a natural tradeoff between having a global integrated platform (and not-so-flexible database) and having de-centralized data (with local flexibility). While the latter gives the local entities more flexibility to maintain and control their own data, it is hard to connect the dots and consolidate the data on a global scale.
Global data management is a constant struggle for many investment managers. Do firms want to be a truly global organization with consistent data across a single platform, or are they content being an international firm with disparate systems, yet greater local flexibility?
To be truly global, integrating a web of different IT platforms and data is not ideal. Instead, firms should aim for a modern and integrated IT platform to support global operations. Investment managers operating in a single market often have platforms that can support their simplistic reality of a single processing cycle, a single end-of-day, and a single night stream. These basic systems were not designed to support multiple currencies, let alone the ability to enter new markets with different regulations and time zones or process voluminous amounts of data.
It’s not just about which markets you enter, but how you enter
There are a number of ways firms enter new markets. For simplicity’s sake, these can be split into four options:
- Establish own office in new market
- Partner with local investment management firm
- Acquire a local investment management firm
- Operate globally from headquarters
There's no-one-size-fits-all approach, and firms will decide how best to enter a new market on a case-by-case basis. No matter the decision, one of the first questions must be, how will you integrate the data from the new entity into your global operations to ensure a level of data consistency globally? This will most likely require that all entities are operating on the same integrated technology platform. It may seem the tougher option up front, but it will lay the foundations for efficient operations, supporting you with an exact view on investible cash, cash forecasts, position overview, etc.
...how will you integrate the data from the new entity into your global operations to ensure a level of data consistency globally? This will most likely require that all entities are operating on the same integrated technology platform.
The importance of a single platform
To maintain high quality and consistent data, it is important to bring all new entities onto the same platform. Assessing whether your current platform is capable of being a global operating platform or whether it needs to be replaced is part of the choices you need to make first. John Gregory, Head of Technology & Middle Office at Ashmore Investment Management wrote in a recent article that rather than letting new entities choose whether they should adopt your platform or not, they should have to prove why they can’t. Here, it is important to differentiate between local regulations and local market practice. Only allow divergence if there is a direct regulatory reason for your new entity not to adopt your platform.1 This eliminates reconciliation requirements and gives firms a chance to really drive consistency in processes and data globally.
A hub-and-spoke approach where your local markets have their own people, processes, and technology is typically very inefficient and costly over the long term. It may get you up and running fast, but it will disrupt your strategic objectives of being a truly global firm.
As shown in Figure 1, having a single integrated platform to support your business is a key success factor and will allow you to consolidate data from all your operations whether they are joint ventures, acquisitions, or a new office. Having one integrated platform eliminates the need to create all sorts of interfaces and pull data back into a centralized processing environment. From Indonesia to Saudi Arabia, there are examples of firms entering new markets via partnerships, and successfully rolling out their global platform for the new entity. There’s no magic to it, and it is possible.
Fig. 1: Sharing your data on an integrated vs. disparate platform
An IBOR connects all the (data) dots
Having an investment book of record (IBOR) at the core of your platform helps make sense of the vast amounts of data generated within your firm globally.
If you have data in different warehouses, scattered around the world, it can be tough to know exactly what your start-of-day is. This is not efficient. To get around this issue, the IBOR gives a good view of start-of-day positions as it offers a single source of truth and can aggregate all data, so that no matter where in the world you are, you can be sure that your start-of-day data is accurate.
The IBOR also supports cash processing by ensuring that all portfolio managers know how much cash is available, or how much cash they need to raise, no matter where they are in the world.
Centralized data supports global compliance and client reporting
Having a consolidated database, which contains accurate and timely data, increases the trust of reports drawn from the database. Errors in reporting, whether it is regulatory or client reporting, can have dramatic consequences.
Growing regulatory requirements often comes down to data quality. Are you able to make sense of all of your data, so that you can satisfy regulator demands? We’re starting to see cases where regulators are going after individuals, as well as organizations, making regulatory compliance hit even closer to home for some. To sleep easy at night, you need to trust the reports you are creating, and the data they are based on.
A client may invest a certain amount of capital with a particular firm and ask to have that investment spread out across multiple different products around the world. When it comes to reporting, however, the client wants this done in a centralized fashion, so they can see a report from the one core investment manager, rather than lots of reports from the different affiliates. The IBOR supports that requirement by providing one centralized view of data.
Going global without an IBOR is like playing Russian roulette with your data
While it may be possible, it isn’t recommended to go global without an IBOR. If you must constantly struggle to reconcile the different views of your positions and holdings across different markets and different time zones, you're inevitably going to end up with errors stemming from inaccurate data, differences in pricing of assets, etc. You're going to have data quality issues which will severely hold your company back. The cost and risk of trying to do without an IBOR are simply too high.
Feeding your front office with the data they need
In today’s highly competitive market, your front office needs to be able to manage ever-increasing amounts of trading data for a host of different asset classes, spread out across multiple geographic regions. With most global firms spreading out their front office investment professionals in the various markets they operate, ensuring a consistent view of data for them is vital.
We have seen examples of front offices creating their own systems to keep track of, for example, investible cash, because their core systems could not provide that information. Integrating more and more systems inevitably leads to more manual processes and increased risk of human error.
If your front office is wasting too much time reconciling and integrating data from disparate sources, or trying to get start-of-day data ready, you are already lagging behind your competitors. Your data foundation must provide one source of truth at all times to ensure your portfolio managers are making the most informed investment decisions. The IBOR provides your front office with the most up-to-date data – rather than what things may have looked like several hours or days before.
Managing your risk
Operating globally, firms are even more exposed. Correct and up-to-date data helps to accurately and reliably stress test the exposure firms face to countries or companies they are investing in. It’s about having a very good handle on your positions, data, and supply chain and how well or how much true exposure does your firm have and your clients have.
An IBOR gives the best available data from a risk analysis perspective by pulling information from all the different regions from across the world. Meaning that risk managers no longer need to spend time consolidating data ...
An IBOR gives the best available data from a risk analysis perspective by pulling information from all the different regions from across the world. Meaning that risk managers no longer need to spend time consolidating data, and can instead assess risk and make determinations on where a particular firm is versus their risk budgets. Based on these findings, they can make recommendations for changes if they need to at a global level rather than having to go to each market unit and figure out what that means on a micro-basis.
An integrated system for consistent data throughout your global company
Whether you are a local or global player, data plays an increasingly central role in supporting your front office, client reporting, regulatory compliance, and risk management, and much more. Globalization means more data, and more complexity, so having a handle on your data and ensuring that it is accurate and available across the organization is imperative to global operations. While there will always be a tradeoff between having a global integrated platform (and not-so-flexible database) and having de-centralized data (with local flexibility), firms should choose carefully to ensure that their data is top-of-mind no matter the option they go with.