Read this article and learn about:
- The growing trend toward internalizing data management
- Why the acceleration of highly automated trading systems is compressing the front, middle and back offices
- The importance of closing the “data gap” in investment and data management systems
- How an integrated solution translates into 51-242 bps of inherent alpha
ABOUT THE AUTHOR:
Marc Mallett, Vice President, Sales & Account Management, 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.
Closing the “data gap” is just one dimension of the larger changes that are redefining investment and data management systems. The convergence of inadequate data management, renewed consideration of insourcing over outsourcing, and continuing compression of the front, middle and back office are behind a growing importance of obtaining a more unified view of the portfolio for asset managers of all kinds.
Closing the data gap
The far-reaching restrictions imposed by Dodd-Frank and Basel III have resulted in a heightened focus among many asset managers, on managing their data more closely than ever. According to a recent survey, 80% of large asset managers (representing a combined USD22.5 trillion in AUM) do not receive investment performance numbers based on intraday calculations, and more than 50% of those surveyed are not confident in the accuracy of their performance numbers. Without accurate, real-time data, funds are hard-pressed to understand how large, macroeconomic events (e.g., Greece, China, Oil, flash crashes, etc.) are affecting their portfolios.
Most U.S. pension funds, which represent one of the largest investable pools of assets in global stock and bond markets, with some USD22 trillion in total assets, struggle to perform intraday calculations. It is reasonable to presume funds in this position are unquestionably leaving money on the table as a result of these systemic shortcomings.
Developing a reliable investment book of record, having real-time access to high-quality data, and sustaining transparency for regulatory and client demands are central to the growing trend toward internalizing data management with asset managers generally.
Developing a reliable investment book of record, having real-time access to high-quality data, and sustaining transparency for regulatory and client demands are central to the growing trend toward internalizing data management with asset managers generally.Marc Mallet, Vice President, Sales & Account Management, SimCorp North America
Insourcing gets a new look
One of the most important levers in achieving a unified view of the portfolio can be found in the continuing compression of the front, middle and back office. The longstanding convention of the front and middle offices supporting unique agendas, with competing functions, melted away during the financial crisis when existing risk mitigation mechanisms failed en masse. The consolidation of the front and middle office coming out of the 2008 financial crisis was just the first of several phases driven by the tremendous technological advances occurring inside Wall Street trading engines. Those changes were, however, well underway; the financial crisis merely accelerated what had already begun.
Most important, a rigorous re-assessment of the pros and cons of insourcing versus outsourcing provides a forum for questioning whether separating investment management companies from their most critical data at a time when they need to be closer to it makes sense.
Cost savings and competitive advantage over other managers and the escalating need to be as close to their data as possible is behind renewed interest in taking an insourced approach to data management. Accessing and managing their data is the root cause of investment inefficiency, requiring managers to dedicate precious time and resources to reconciliation activity. Compliance requirements are also driving an increased interest in insourcing, as regulators come to demand increasing accountability from investment firms directly instead of from vendors.