At a recent round table in Copenhagen, industry participants took a moment to talk about the data challenges they have been encountering. Middle-office staff of both investment managers and asset servicers attended the event.
The round table was held by managed data services provider RIMES, who host approximately 30 similar thought-leadership forums a year globally. These discussions have helped grant broader insight into the difficulties buy-side institutions are facing when managing their ever-increasing data volumes.
Several specialist consultancy firms for the financial services industry have conducted comprehensive research into these particular issues, and also the strategies that firms have used to overcome them.
Investment management services provider Cutter Associates also contributed to thought leadership in this space when it released “Benchmarks – not a word but a sentence?” in 2012. This document looked into the ever-growing need that asset managers have for data, the hindrances that buy-side institutions encounter when managing data, and the solutions they can use.
Buy-side financial institutions were given further insight in 2013, when the Data Governance Best Practice Handbook was released. This document focused on practical methods for setting up optimal policies and procedures.
The guide culled input from 16 major investment managers in the U.S. and Europe, and was developed through the collaboration of RIMES and specialist investment management consultancy firm Investit.
States of development
There are three commonly recognized states of development that firms encounter in their data governance efforts. Asset managers might harness these to get a sense of what steps they should take next. The three states include:
- State of the industry: companies at this point in their development are seeking to reconcile the dual pressures of managing their expenses and making greater use of their current information.
- State of the data: at this level, firms are striving to leverage more information as they seek to harness new investment strategies and obtain exposure to a wider range of assets.
- State of the players: buy-side institutions are here if they are having a hard time figuring out who has ownership of crucial information and the license to use it.
Round table attendees note industry trends
Participants at the RIMES Forum in Copenhagen on March 20th discussed their interpretations and progress around data governance within their firms. The event was put in place for buy-side financial institutions to openly discuss their experiences around data governance and reflect upon this in line with the best practice framework provided by the research.
Cost versus quality
Participants identified cost concerns as a major variable in their decision making. At the same time as asset managers are looking to control their expenses, they are also under great pressure to obtain strong results.
Ultimately, clients of investment managers are the driving force in the benchmarks that are used. Nevertheless, attendees felt that nobody within their organizations is challenging these clients if they would be satisfied with using benchmarks that are similar but less expensive. Procurement and data management teams have significant motivation to use measures that come along with lower costs, but must follow the decisions of these stakeholders.
A need to comply with existing regulations was cited as being a major driver behind firm operations. Buy-side institutions are facing both a pressure to meet these requirements, and also uncertainty as to how they should do so.
For example, the benefits of establishing a chief data officer were noted, as attendees emphasized that appointing a person to this key role would ensure that policies are put in place to achieve the necessary standard of data governance. However, participants observed that this is an emerging role on the buy-side, and there are no strict guidelines yet as to what the position should entail.
The size of a company frequently has an impact on how easy it is to establish and maintain proper data governance. Firms that are larger in scope have a greater volume of information to handle and also more employees dealing with this data, which makes it more difficult to maintain control.
Data governance maturity
Four crucial stages of maturity have been identified for the data governance framework of companies. The consensus of the round table was that the attending institutions were at the emergent stage. This means that the companies are rather new to setting up the proper policies and procedures for handling their data governance.
Many firms noted that commonly recognized driving forces for making data governance more of a priority have not yet happened. The participants reported that they have not yet had data audits, but indicated that they have heard of other firms undergoing such reviews. In addition, many emphasized that the need to have the right policies and procedures is growing more important and coming closer to becoming a concern for C-level executives.
Companies that want to move to the next step in their data governance might consider working with a managed data service provider. By collaborating with one of these firms, a buy-side financial institution can get a far better sense of where they are and what they can to do progress.