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The RIMES Forum – Philadelphia

Managed data services provider RIMES recently held a round-table in Philadelphia, which gave participants the chance to share thought leadership around data management and data governance. Several buy-side representatives, including those working in data management, performance, risk and operations attended the event.

Buy-side institutions are struggling in an environment where data is constantly growing and regulations are becoming increasingly stringent. Having an appropriate data governance framework in place can help these firms achieve compliance. RIMES has comprehensive knowledge of the challenges these industry firms are encountering, which it has gained by working with more than 250 clients in 40 countries.

The managed data services provider has made substantial contributions to thought leadership in this area. RIMES sponsored several research reports over the years. The firm collaborated with investment management services provider Cutter Associates to produce various reports, including “Benchmarks – not a word but a sentence?” This document, released in 2012, examined the challenges that surround benchmark data management, and why such activities are becoming more expensive and complex over time.

In 2013, RIMES released “Benchmark/Index data management and related costs,” which it developed in partnership with Deloitte. This poll pointed to the widespread need that investment managers have for customized benchmarks.

The Data Governance Best Practice Handbook, also released in 2013 in association with Investit, provided industry participants with practical solutions they could harness to maintain best practices in their data governance frameworks.

The Handbook helped give industry participants clarity. Many of them already know that they need data governance czars, data governance stewards and also the right culture. However, some need more guidance in terms of the practical steps they can take. These companies can leverage the handbook to get better insight into what they should do.

What challenges face buy-side firms?

In order to realize the true value of this service, it is important to know the difficulties that the buy-side is facing. The Philadelphia round-table was a great opportunity for industry participants to elaborate on these challenges.

Investment managers are currently grappling with pressures that could potentially lead them in different directions, including:

  • Seeking returns: Investment managers might aim to maximize returns, or alternatively generate consistent, moderate results.
  • Vintage strategies: Many firms are being pushed to harness new strategies. Since the number of these approaches is growing rapidly, the number of benchmarks used to assess their performance has been surging.
  • Using new investment classes: Some investment managers are seeking to stand out from the competition by investing in different investment classes. Many firms are looking to differentiate themselves by gaining exposure to alternative investments.
  • New geographies: Investment managers are also exploring different geographies to stand out from the competition.

In addition, the buy-side in general is having to cope with challenges, such as:

  • Ownership: Many companies have a lack of certainty regarding who has responsibility for their mission-critical information. A person who works for a U.S.-based investment manager identified with this particular situation.

“[The company] was a small firm and I have been there for a long time. The knowledge of the data is in the hands on a small number of people. Some of this project is just about knowledge, so that the data is more accessible and the data is defined,” the individual stated.

“It’s really about ownership for the quality of the data of our project. It’s really about data stewards and assigning ownership for every piece of data. I have been on many sides of this, working in IT and operations. Everyone thinks that IT owns the data, and this department maintains that it does not own the data.”

  • Allocation: Firms face data management challenges such as whether to decentralize this information or keep it in one place. Either choice will come with tradeoffs.  One individual noted the challenges that surround such matters.

“We have a data governance infrastructure,” the person stated. “We have been developing this over the last few years. It has certainly been an area of focus. Before, there was data everywhere. There was plenty of redundancy and we identified some cost inefficiencies.”

  • Guidance: Many companies could benefit from practical approaches they can harness to create the proper data governance framework.
  • Regulatory landscape: The current environment is both intricate and constantly changing. Several landmark reforms were passed in the years following the financial crisis, which have created a regulatory framework that affects a wide range of areas.

Why prioritize data governance?

Since they are struggling to overcome many data management challenges, investment managers might wonder why they should focus on establishing this crucial set of policies and procedures. The round table discussed the major drivers that are motivating them to prioritize such matters.

One representative of a U.S.-based investment manager who specializes in investment operations identified the need for having accurate and appropriate data.

“The knowledge of the data is held in the hands of a small number of people,” he said. “Some of this project is just about knowledge.” His company wants to make sure “that the data is more accessible and defined.”

“It’s really about ownership,” he added. “It gets down to the data stewards, and assigning ownership for all the different pieces of data.”

How can firms assess their progress?

While some financial institutions are further along than others, there is wide variation in their progress. The Handbook has given companies some clarity by breaking data governance evolution down into three states of development and four stages of maturity. Investment managers and other asset owners might leverage these points to evaluate their progress and determine what actions they should take next. The three states include:

  • State of the industry: Companies are currently “torn between cost reduction and data efficiency.” Investment managers are encountering challenges generating returns, but they are also focusing on cost management. As a result, many of them are seeking to do more with the same amount of resources.
  • State of the data: Investment managers are frequently coping with the aforementioned challenges of striving to both generate returns and engage in more sophisticated approaches to investment that harness new strategies, geographies and investment classes.

These industry participants have robust demand for data, as even a mid-sized investment manager could have up to 40 different benchmarks that it leverages to assess performance. These firms frequently don’t have a choice, as these benchmarks could come along with a mandate.

Amid this situation, the industry is seeing a proliferation of differently-weighted benchmarks, which evaluate smart media strategies and LDI strategies.

State of the players:

Firms acknowledge a lack of data ownership. Companies license the data, it flows into the business, and then tracking usage is difficult. Sometimes, nobody knows who is using what information.

In addition, the expertise around indexation and benchmarks can often be fragmented and siloed. The people who know benchmarks the best are on the performance and risk team, whereas people responsible for bringing the data in and maintaining its quality work in IT.

Companies in this stage often face a dilemma as to whether they should decentralize their data or keep it in one place. There are costs and benefits associated with both approaches.

Firms that maintain their key information in a central location can have a hard time responding quickly. There are also time and cost considerations. Taking in all the new information can potentially require a great deal of man hours. Firms could spend months integrating all of this data.

Alternatively, financial institutions can decentralize, in which case they can quickly surrender some control over their crucial information. There are also potential costs in terms of cost and quality.

For example, companies that spread out their data can suffer disagreements between the figures provided by different departments. There might be a variance in terms of the returns that investment managers generate. In this case, performance might have to come in and verify the data.

The stages of maturity

The Handbook outlines four major stages that companies encounter in their efforts to establish the proper data governance framework. Firms can use these descriptions to get a sense of where they are, and what they need to do next so that their data policies and procedures can become more sophisticated.

  • Non-existent: This is for companies that have not yet started to focus on setting up the proper data governance framework.
  • Emergent: Firms that are in the beginning stages of creating and implementing their data policies and procedures are in this stage of maturity.
  • Work in progress: Companies that have put their due diligence into designing the right framework to govern their crucial information have reached this point. Many firms are at this particular stage.
  • Mature: Reaching this point requires a lot more than prior stages. Companies that want to reach this stage need to attain the buy-in of stakeholders at all levels of the business. In addition, firms should engage in constant efforts to better their data governance framework.

A person representing a U.S.-based investment manager emphasized that his firm is still in the stage where it waits for data problems to bubble up to the source instead of proactively finding them.

“It really isn’t something we have been focusing on, since we have so many other priorities. We tend to reactive in our approach. When we are approached by vendors for compliance or other purposes, we react,” the individual said. “It’s no surprise we’re at our current level of maturity, since it hasn’t been enough of a problem for us to zero in on it. It may become a bigger problem, and that’s why I was asking: what are some of the drivers that would make it a priority?”

“We have the data costs that are continually increasing, and developing a data governance framework would add additional expenses. That’s a hard sell,” the attendant concluded.

The key role of culture in data governance

Firms that want to adopt an ideal set of policies and procedures for their data should know that effecting such changes requires buy-in at every level of an organization. An attendee noted the impact of having a disorganized approach to setting up a framework for integral information.

The investment management consultancy Investit identified three levels involved in these initiatives:

  • Executive mandate: This type of decision making involves the senior management of a firm, and addresses Enterprise Governance. These corporate officers can create a Data Governance Council to ensure that people at all levels of the organization are on-board.
  • Management direction: This level involves corporate management, who are instrumental to ensuring that any data governance framework is followed. These crucial members can help gauge the success of such initiatives by developing Key Performance Indicators, and can facilitate implementation through contributing strategy and oversight.
  • Operations: People who are directly involved with data management play an indispensable role in the execution of any policies and procedures developed for important information. Staff members at this level can do their part by setting up a Data Management Team that takes ownership of this particular function.

One person gave some insight into what it is like to have a disorganized approach to developing the right framework for integral information.

“The data governance was at a local level, and we needed it at a system level,” the individual stated. “There has been an effort recently to install a chief data officer at the board of governors and adopt standards at the system-wide level.”

Tools firms can use to evolve

RIMES identified several resources that companies can use to move forward in terms of their existing data governance. These include the Data Governance Handbook and undergoing private consultations to identify key challenges that companies are encountering.

Undergoing in-depth assessments

Buy-side financial institutions that are serious about improving their data governance framework might consider undergoing a stringent assessment of their policies and procedures by working with a company like RIMES. By doing so, they could outline all the areas they should address, and get on the path to progress.

 

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