Navigating data management challenges
In today's competitive financial landscape, asset managers face the significant challenge of attracting new institutional clients, in part due to outdated data management practices. Many firms still rely on an Excel-driven approach, which often leads to inconsistencies and inefficiencies. To meet the sophisticated information needs of institutional clients, a shift to a database-driven approach is essential.
Data is everything in asset management
Hilton emphasises the critical role of data in asset management, explaining that firms must regularly update data on their securities, maintain pricing across multiple vendors and currencies, and track various characteristics like region, sector, and market cap. Effective data management is essential for accurate analysis and reporting.
He further distinguishes between Excel-driven and database-driven systems. In an Excel-driven model, data is spread across multiple workbooks, which often lose consistency over time. In contrast, a database-driven approach uses a single source of truth, ensuring data is current and analyses are consistent.
Embracing a database-driven approach isn’t just for quantitative or large asset management firms. Accenture’s 2020 report revealed that 83% of asset management firms lacked enterprise-wide Master Data Management, a statistic that likely hasn’t improved much. Yet the ability to manage data well is becoming increasingly essential, even for medium-sized firms.
The evolving expectations of institutional investors
Over the past 15 years, institutional investors have increasingly demanded detailed analysis of their portfolios, including:
- Contribution and attribution analysis: Breaking down the sources of investment performance by region, sector, and investee company size.
- Risk analysis: Measuring portfolio risk drivers and distinguishing between systematic and idiosyncratic risks.
- ESG monitoring: Ensuring portfolios meet ESG commitments and exclusions.
Hilton points out that the days of selecting managers based solely on NAVs and overall performance are long gone. Institutional investors expect a wide range of analysis when selecting third-party managers. They want to see detailed contribution and attribution reports, win-loss ratios, trading history, and insights into how a manager performed in challenging market conditions. This analysis must be consistent and backed by data over long periods, often extending up to 20 years. Firms that adopt a database-driven approach can meet these high standards and gain an asset-gathering advantage.
The benefits of a database-driven approach
A database-driven approach to data management offers several advantages:
- Consistency and accuracy: With a relational database, you have a clear, single source of truth. This ensures that all analyses are consistent and accurate, providing reliable insights for decision-making.
- Efficiency: Databases can handle large volumes of data more efficiently. This means faster processing times and the ability to manage more complex datasets.
- Scalability: As your firm grows, so does your data. A database-driven approach can scale with your needs, accommodating increasing data volumes without compromising performance.
- Enhanced analysis: With accurate and consistent data, you can perform more sophisticated analyses, such as contribution and attribution analysis, risk analysis, and ESG monitoring.
Additionally, database-driven data management enhances internal functions such as compliance, risk management, and marketing. Well-maintained data ensures faster, more accurate performance assessments, which align with regulatory expectations. It also strengthens oversight and governance activities at the board and committee levels.
The shift to database-driven data management without disruption
Bet Herrera Sucarrat acknowledges that transitioning to a database-driven approach can be a challenge. Building a strong data foundation requires significant effort, including creating a data warehouse and recruiting skilled personnel.
Outsourcing data management tasks to third-party services can help asset managers adopt a database-driven approach without significant internal changes. These services provide the necessary infrastructure and knowledge, allowing firms to focus on their core business activities. This strategy mitigates key person risks and ensures that data management practices meet both external and internal needs.
How can we help?
Adopting a database-driven approach to data management provides a significant competitive advantage for asset managers. It ensures consistency, accuracy, and scalability, enabling you to meet the increasingly demanding expectations of institutional investors. By leveraging third-party services, you can achieve this transformation without disrupting your firm’s culture or operations.
We deliver risk and regulatory risk reporting through our proprietary online platform, RiskMonitor. With over 40 years of combined experience in developing complex financial technology solutions, our team is well-equipped to provide RiskMonitor reports directly to clients or offer it as a SaaS (Software as a Service) tool, ensuring maximum oversight, flexibility, and transparency of reporting. We offer an end-to-end service designed with automation in mind.
Clarus Risk, an Apex Group company, is a fintech business founded in 2011 to deliver first-class risk and regulatory reporting through the RiskMonitor® platform.
