Data: The oil of the 21st Century

Here’s an excerpt from our recent white paper, Revenge of the Nerds – Rethinking Big Data in Asset Management

For decades, oil has been a dominant energy source and a key driver of the world's economy.  Today a different commodity is beginning to drive global commerce, data. 

It’s likely you have already heard of “Big Data”, the term used to describe the vast amount of information generated through activity now that technology has evolved to be able to capture and store it. 

Every day, people create 2.5 quintillion bytes of data. That's 2.5 followed by 18 zeros. To put that into perspective, each day it equates around 2.5 trillion novels.  If an average paperback has a depth of around 2.5cm or half an inch, that’s 24,901 miles if they’re placed in a row, which would stretch around the equator roughly 800 times.

There are around 19 billion network connections on the planet – an average of 2.5 connections per person.  More than 4 billion hours of video are watched via YouTube each month.  Modern cars can have up to 100 different sensors to record and monitor driving activity and vehicle performance.

Decisions are based on information - or knowledge - and you cannot have information, or knowledge without data.  Technology has provided mechanisms for the creation and storage of data and data is a part of most - if not all - the megatrends we are witnessing in society.  

Activity in the financial markets is generating big data as well.  The New York Stock Exchange captures around 1 terabyte of data during each trading session.  Not only could this data be used to provide insight into events, but increasingly to predict consumer behavior and preferences, all of which is gold dust to marketers, strategists and analysts.

In 2010, UBS used satellite imagery data from Remote Sensing Metrics, a Chicago-based provider of geospatial data, which showed that the volume of parking lot traffic at North American Walmart stores was up 4% on a previous year.  They used this intelligence to contribute to their research decisions prior to profit releases being made.  Similar techniques can be used to predict crop production, global logistics volume and so forth, providing insight into a company or sector’s potential results before any formal announcements are made.

Data is created all around us.  Anything we do can be tracked.  Even a walk through a park – if we carry an enabled device – can be recorded.  The speed, route, time of day and so forth all contribute to a wider picture of you, the consumer, that is created for analysis and onward distribution.  

From an organization’s perspective, tapping into data is rapidly becoming a necessity, especially when your competitors are already doing so. It's truly become a ‘"must have".

Consider Apple, who are considered pioneers in utilizing data. Apple tracks the usage of their smart devices to determine what users want and need.  They then focus development attention and the next release to meet that need.  Similarly, cookies track your internet activity and are used to subsequently push targeted advertising to you.  Brands can use this data to present messaging created specifically for you, created with an understanding of your likes, preferences and needs and based upon your own activity.

Big Data is not just interpreted for marketing purposes. It can be used to change the outcome of events in real-time. During a Formula 1 car race, data engineers are reading and interpreting huge data sets.  There are numerous ways they use this data. They can pull a driver from the race if they think an incident of significant magnitude is about to occur.  The driver can adjust certain elements of the vehicle's performance in response to data that’s provided to them.  In other words, they can alter their machine based on their environment. With access to data, companies can do the same.

Data in Asset Management

A global survey, conducted in 2016 targeted CEOs and their concerns.  The findings were broad and understandably, covered traditional topics; competitors, regulation, retaining customers and so forth.  However, when you consider these in conjunction with the benefits proper data management and analytics can bring, you begin to see how such concerns can be addressed.

  • 70% of respondents were concerned about disruption coming from sources that are not currently considered a competitor. 
  • 85% of CEOs acknowledge that they need to think strategically about such forces and innovation to safeguard their organization’s future.
  • 75% know that innovation and change will likely come about through cooperation with other parties - technology vendors, clients and so forth.

Enterprises within the asset management sector are already beginning to realize big data’s potential.  A recent poll (March 2017), conducted during an industry suggests that the benefits to be gleaned from proper data management correlate with the issues that are perceived to be of the most concern to CEOs in the sector.

73% of poll respondents chose “Operational Risk Mitigation” as the key benefit, with “Improved Agility” (70%) and “Better Decision Making” (62%) also rating highly.  

Interestingly, whilst obviously contributing financially, these were seen as more significant benefits than both “New Business Enablement” and “Cost Savings” (51% and 42% respectively) that might be perceived as having more tangible links to the bottom line.

Today, data within Asset Management is primarily being used to support and facilitate the trading process.  Trading systems import prices, performance is compared to benchmarks, and client records are stored for reference and reporting.  Internally, data is created to support management decisions, usually through things like Scorecards, Key Performance Indicators and Key Risk Indicators.  Often, these are financially driven and generated by some form of financial control department.  This is a model that has been in existence for some time, and is facilitated by the software that is used to provide an asset management service.   

To read the rest of the paper – click here