The desire to pursue new, sophisticated investment strategies generates conflicting objectives. All firms wish to increase their business agility and shorten time to market. This must be weighed against the need to manage a growing body of complex data that is also growing in complexity. On top of this there is a stringent requirement to demonstrate good data governance to stakeholders and the regulator. All of this must be achieved without increasing costs, or at lower costs.
Feedback from the market suggests there are many elements of data management costs. Visible costs, such as license fees, increase in line with use and are normally predictable. But, in our experience, rising external data licensing costs have often diverted attention from the escalating internal challenge of getting data fit for purpose to suit specific business processes, such as portfolio management, risk management or performance measurement. Across the industry and within all firms, many more people perform data management tasks than those in data management teams.
Often, heavy costs begin to accrue once the data is on board. This is especially true for specialist data types, such as index data and benchmarks that are complex and difficult to manage. Such costs relate as much to governance and management of the data as to data validation and quality assurance and can add up to a multiple of the visible data costs.
In our experience, many firms struggle to identify precisely where costs occur, as they are hidden elsewhere in the organization, such as the front or middle office. In practice, additional data management is performed out of sight, and therefore not understood or quantified. Business users often regard data management as an unavoidable part of their job, even if it is low value adding. Firms that fail to manage data effectively incur hidden costs but also significant opportunity costs reflected in impaired business agility and weakened competitiveness.
At RIMES, we believe that a managed data service offers a fresh approach to data management that helps firms identify and reduce hidden costs and prepare for strategic growth.
Hidden costs exposed
Asset management firms incur hidden costs throughout the data management process. Although these are not new, they are exacerbated by the need for tighter data governance and increased regulatory oversight. Sources of hidden costs include:
People. In most firms, many people have to perform data management tasks is addition to their own job, such as a portfolio manager or risk analyst.
Market data systems. Some firms have implemented systems to support the data management process, including reference data management systems, data warehouses, ETL tools and hubs.
Service providers. Asset management firms often enlist help with data management from third party providers, including custodians, back-office outsourcers and managed service providers.
Other systems. Many firms use additional systems, add-on tools and services to acquire, cleanse and deliver market data.
The above costs are confirmed by an independent study that measures these in terms of Full Time Equivalents (FTEs). Asset managers in the survey sampled had, on average, 7.5 FTEs in IT and Data Management dedicated to ‘business as usual’ activities. However, this figure doubles to 15 FTEs when staff from other departments, such as the front and middle office who also perform data management are included.
In practice, the 15 FTEs doubles to 30 FTEs, when staff involved in periodic implementations of systems and solutions for managing market data are included, for example to comply with new regulations. So, the actual number of FTEs involved in data management is four times greater than those in dedicated data management functions. This figure is confirmed by our own interactions with the industry.
Benefits of a managed data service
Many of our conversations with RIMES clients and prospects revolve around the benefits of a managed data service. All firms wish to improve data quality and timeliness for key business functions but they also need to quantify hidden costs in order to build a business case for investing in a managed service. To that end, we commissioned Forrester to conduct a study to assess the total costs and benefits of RIMES MDS for an individual firm.
The study adopted Forrester’s proven methodology to asses the Total Economic ImpactTM (TEI) of a managed service. It offers a robust framework that helps firms identify and quantify hidden costs and to estimate the TEI of RIMES MDS on any individual firm.
How the benefits accrued:
In addition to improved operational efficiency of up to 20% within core areas of data operations and IT, the composite client experienced the following benefits:
- Improved ability to scale, leading to cost avoidance of additional headcount
- Faster time-to-market, resulting in improved front-office productivity
- Reduction in third-party legacy vendor fees.
We have discussed the Forrester Findings at several client forums and several organizations have run the calculation based on their own data.
The Forrester TEI framework has been designed to calculate the potential benefits of managed data services for any asset management firm. We are encouraged by its power and flexibility and would like to help you measure the potential benefits for your own organization.
- RIMES and ISS ESG Partner to Help Investment Firms Succeed in the ESG Market
- RIMES Named ‘Best Index Data Provider’ at the Data Management Insight Awards 2019
- Making Sense of the Past to Provide Data Services for the Future
- RIMES 2019 Buy-side Survey: Global Data Management Trends
- Industry Experts Discuss Data Management at RIMES’ Los Angeles Seminar