Data quality crucial to hedge fund performance

While hedge funds need to juggle many different priorities to survive in today’s competitive environment, they must not lose sight of maintaining high data quality.

Data quality has an enterprise-wide impact
The accuracy of information affects an entire organization, and this point is becoming increasingly salient for fund managers, James Williams, managing editor of Hedgeweek, wrote in an opinion piece. Information has become so important that the president of the Investment Management business of a company that provides technology-based solutions to financial services firms referred to data as the new key performance indicator of the buy-side industry, Williams wrote.

While buy-side firms can harness data sets to bolster efficiency and reduce their costs, these applications are only the tip of the iceberg. These institutions can also use the information to comply with the regulatory framework set forth by supervisors and also meet the needs of investors.

Savvy industry participants can leverage information on their customers and prospects to improve their business development efforts. Doing so could provide a boon to long-term sustainability in the current environment, where tons of would-be entrepreneurs want to run a hedge fund.

Data quality and investment decisions
Data quality has potential implications for hedge funds’ investment decisions. By having reliable information, these institutions can respond to changing market trends effectively. The financial services technology provider gave his two cents on the situation.

“One of my favorite phrases is ‘superior data supports superior decisions’. The point being, it’s not only about having the data accessible to the front, middle and back office functions, it’s also about the quality of data,” the industry expert stated. “Any error or incompleteness in the data diminishes the quality of decision making and increases the operational expense of managing and remediating exceptions.”

Meeting regulatory needs
Financial services industry participants are coping with a complex regulatory environment created by the enactment and implementation of several landmark reforms. In the U.S., lawmakers passed the Dodd-Frank Act in 2010, which contained many provisions that affect financial firms.

In the European Union, government officials enacted European Market Infrastructure Regulation. Industry groups and legislators have made the current regulatory environment more complex and uncertain by going after specific aspects of these reforms with lobbying and legislation.

In order to keep up with this situation, hedge funds need to have reference data that is consistent and very accurate, Williams wrote. Regulators are looking into the potential systemic risks associated with buy-side firms, and hedge funds are increasingly including data management in their investor operational due diligence questionnaires.

The importance of data governance
One way that a hedge fund can proactively contribute to maintaining the highest data quality possible is setting up the proper data governance framework. If buy-side firms want to take this approach, they must keep in mind that it requires a consistent investment of time and energy.

Not only do they need to set up the required policies and procedures for their information, they should also engage in continuous improvement to ensure that their data governance framework becomes increasingly mature over time.

One way that hedge funds can expedite the process and increase the odds of it going smoothly is working with a managed services provider. Collaborating with one of these companies can make it easier to identify the root causes that are undermining a buy-side firm’s data quality and then address these challenges. In addition, certain managed services providers have accumulated substantial expertise in how to establish a proper data governance framework and then consistently work toward improving it.

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