Some midsize asset managers believe they can handle their data management internally, while several organizations continue to outsource their middle and back office data management functions. Ignoring the larger trend, a number of firms want to increase capacity and keep all data activities inside the company. The question to be asked is: Does internal data management make sense for some companies?
Money managers must effectively handle data management
Pensions&Investments reported that due new regulations introduced with the Dodd-Frank Wall Street Reform and the Consumer Protection Act, asset managers need to be more diligent about their data management. For access to a scalable data management solution, many firms find that outsourcing their needs to a third party data management company makes a lot of sense. Interestingly, larger bulge bracket managers with assets under management in excess of $10 billion may have more of the capacity required to handle handle data internally, but for smaller players, it’s a different story. Vice President at SimCorp Marc Mallet explained why some companies think it’s better to keep data management on the inside.
“Some companies think it’s better to keep data management on the inside.”
“Firms are looking at what their high-value functions are, what they need to succeed,” said Mallett, according PlanSponsor. “Having a good investment book of record, getting the best data they can for good investments, transparency for regulatory and client demands, that’s why firms are moving [toward internal data management].”
It is not obvious whether firms actually get what they want by managing data in-house. Making sure that data is tailored for performance measurement and properly stored for regulatory and compliance purposes is not an easy task. Additionally, asset management companies may find that they are spending too much time and money on data management activities and less time on value added activities. Ultimately, investment professionals should focus the majority of their efforts on originating investment strategies, not scrubbing datasets.
“[Managers] need to be concerned about service providers’ operational capabilities,” added Mallet. “Operational due diligence is becoming more prevalent. Plan advisers and plan sponsors should be taking a closer look at the systems and processes that support the investment process … If performance data is not up-to-date, there is an inability to see what’s actually driving the performance. This casts a doubt on the accurate tracking of investments, which does not inspire investor confidence.”
Not all money managers are confident about their investment performance data
According to Pensions&Investments, a SimCorp survey of 88 money managers responsible for $22.5 trillion in assets under management, found that 53 percent of firms are not sure that the investment performance figures they report are accurate. Also, portfolio managers at many of these firms reported that they do not receive investment performance numbers based on intraday positions. Brent Beardsley, managing director at The Boston Consulting Group, noted that in many situations, internal data management results in investment inefficiency. Managers find themselves scrubbing datasets, which is a drain on time and resources.
“We’ve found that getting at and managing the data is the root cause of investment inefficiency,” said Beardsley, reported the media outlet. “It means managers have to do a lot of reconciliation activity which is costly for them. Most managers are paying more attention to this. It’s more of a capability and quality issue. [Data are] so embedded in what they do, they want to make sure it’s done right and done quickly.”
Cybersecurity is not a reason to internalize data management
Firms like Conning & Co, noted Pensions&Investments, attempt to handle all their data management internally. Conning & Co, which has $95 billion in assets under management, organized its data management activities under three directors who have strong experience in the field. Brian Baczyk, chief data officer at the company, explained that due to a unique set of requirements, internal management is the way to go. He explained that for cyber security reasons as well, his company’s approach makes sense.
However, cyber security has never been a pressing reason for firms to internalize data management. Additionally, while Conning & Co may have unique requirements, most companies operate in much the same fashion as the competition. As such, there are likely few reasons why internal data management would be a better fit for some companies than others.
Beardsley at Boston Consulting Group mentioned that cybersecurity isn’t a significant driver for internal data management.
“I’ve not seen cybersecurity as the primary reason for internalizing data management,” said Beardsley, according to the news source. “It’s potentially a factor, but in my conversations in the market, I’ve not heard of this being mentioned as the driving force.”
What’s the larger trend?
For many asset managers, outsourcing data management continues to be a growing trend. Third party providers offer software for select managers who prefer to manage portions of their data internally, but the vast majority of companies benefit from allowing data management companies to do their job and do it well. Building proprietary data management systems, for most firms, is just not feasible or logical. Managers require better control of their data to ensure transparency and accuracy. As long as data management companies offer sophisticated and reliable solutions, what reason is there for firms to handle and reconcile data internally?