Data Governance is Becoming a Vital Cog in Investment

Buy-side firms are beginning to realize that sound data governance systems far outweigh simple cost-cutting or controlling measures in the near-term. In fact, not only could controlling visible costs lead to more unforeseen expenses down the road, but firms miss the sustainable benefits of a good data management program.

Effective data governance is the name of the game for today’s buy-side asset managers. With a stricter regulatory environment under Solvency II and soon to be under MiFID II, asset managers are faced with complex data governance challenges.

“Buy-side firms are improving data governance as a priority.”

Data management needs will continue to grow and become more complex, but firms will still need to maintain high expectations for clients and regulators with quality and timeliness. There is also a need to integrate new programs into existing systems so that teams can use them in portfolio performance measurement, attribution, risk and a variety of other applications. As Alessandro Ferrari, EVP of Global Marketing for RIMES, explained in an interview with Only Strategic magazine, according to his firm’s recent Buy-Side Survey, new data management strategies have become top priorities for most firms.

“86% of asset management firms now formally identify and qualify the benefits of their data management strategy, demonstrating that data management and governance are moving up the business agenda,” Ferrari commented. “However, a lot of firms regard good data governance as an ongoing journey rather than a destination and therefore they are yet to achieve the full quality, efficiency and compliance benefits that they know data governance can deliver.”

Firms need to invest in big data and analytics

What the RIMES Buy-Side Survey results showed was that the future of the buy-side asset management sector will be determined by investments in big data and analytics. The successful investment managers will outperform those firms that are less nimble with real-time analytics and predictive analysis. Compliance with regulatory reporting has its challenges, but these revamped data governance systems will push firms to maximize investment performance as well. In essence, it is adopt this technology or die.

Auditing giant KPMG made a similar warning to the asset management sector. According to a recent FTSE Global Markets interview with Tom Brown, global head of investment management at KPMG, with volatility creeping into the world marketplace, asset managers will need to be nimble enough to respond quickly to changing geopolitical developments.

“While geopolitical risk will always be in the fabric of investment management, it is the ability to manage and quickly respond to these developments that defines success,” Brown noted. “However as recent geopolitical developments such as the falling oil price and volatility in the ruble suggest, risks are increasing in unprecedented variety, volume and velocity. Investment managers without the ability to analyze as well as make decisions in real-time, risk falling behind and therefore, impacting fund performance.”

Research findings support the need for more progress in data governance

One of the more intriguing findings in the RIMES survey was that even though 63 percent of buy-side firms prioritize data governance – which represented a 5 percent increase over 2015 – 60 percent claimed that their implementation of those systems was a work in progress. Another 23 percent stated that data governance programs are still in their nascent stages.

What is clear from the survey results and the need for big data and real-time analytics is that data quality will need to become a top priority for investment managers. The complexities that stem from the increasing expansion of regulatory legislation and a market push toward alternative and non-traditional assets will ensure that the firms that focus on strong data governance programs will be the top performers.

Bottom line

Solvency II has placed buy-side asset managers under intense scrutiny. In the same interview, Ferrari stated that firms will not only need to have implemented demonstrable programs, processes and systems, but they will be called upon to conduct frequent data quality examinations to ensure they are complying with regulations and performing at a high level.

“In four years’ taking the pulse of the buy-side’s data management needs, we’ve revealed a glacial approach to data governance improvement,” Ferrari noted. “With the added pressure to comply with active and incoming regulations, the industry is now starting to put plans into action and get to grips with strong implementation of data governance. I have no doubt that the firms with the most tactical approach to data governance will outperform their less nimble counterparts.”

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