Many buy-side firms are facing data management difficulties, and a group of industry specialists got a chance to talk about their unique challenges during a panel discussion hosted by RIMES and held at the 2014 Frankfurt Financial Information Summit.
Franz Rockermeier, who works in Investment Architecture and Processes at Allianz Global Investors Europe, started off by introducing the panelists:
- Thorsten Klassen, Head of Financial Markets IT at Norddeutsche Landesbank
- Steve Cheng, Global Head of Data Management Solutions at RIMES Technologies
- Christian Knapp, Senior Market Data Analyst, Commerzbank AG
In the first topic of discussion, “Utilizing Utilities,” Rockermeier talked about buy-side firms using new approaches. Whereas these institutions might use “one tool, one vendor and one liftout strategy,” they might instead work with several frameworks. After noting this situation, he asked the panelists for their input.
Knapp chimed in, emphasizing his concerns about practical matters.
“I want to stress ‘efficiency,’ and combine it with ‘utilities,'” the industry expert stated. “If I talk about utilities, my focus would be on improvement in the processes. Not necessarily IT utilities, which could support these processes, but if you look at a typical infrastructure, you have several parties, even several systems. You start with data licenses, then you have data vendors, then you have a data management system, where you incorporate adjustments, which have different requirements, and drive the whole flow.”
He summed up his point, stating that his company aims to coordinate existing processes, and then harness utilities to start governing them. For example, a single utility could govern procurement matters, which would be far more organized than having a situation where various licenses are being used, but not in proper alignment.
Cheng gave his input on efficiency, emphasizing that many financial organizations are looking to become more efficient by pinpointing areas where they do not benefit from doing the work themselves.
Industry participants are striving to add value to investment management, since these core activities provide a competitive advantage, and have managed data service providers such as RIMES handle tasks that are not their bread and butter.
The underlying business question
Amid this environment, Cheng noted that many firms are asking themselves “What can I stop doing because someone else can either do it more efficiently, or at a lower cost or to a higher quality, and what should I hold on to, since that is what makes a difference in the organization.”
He continued by stating that there are many answers to this question, including how utilities and software are used, and noted that using a managed data service may be a solution.
Outsourcing and managed data services – key considerations
Franz emphasized that if buy-side firms are thinking about outsourcing, there are certain matters they must consider.
“To which extent can I really outsource? Am I not ultimately responsible myself for keeping my licenses – the control of my data – in the data governance?,” he asked. “What should I do … to identify what can be outsourced, and what should be kept in-house?”
When thinking about handing something over to a third party, there are many important considerations, Cheng emphasized. These include:
- Requirements for efficiency – This can create tradeoffs between efficiency and quality. If you make an effort to bolster the former, it could easily come at the expense of the latter, and vice versa.
- Flexibility – When looking for a service provider, get one that is resilient. The company should have fast time to market, and offer high quality.
Keep in mind that if you only focus on attaining one result – efficiency, for example – the outcome could be problematic, he noted.
At this point, panelists gave their views of outsourcing, and recounted their experiences using it.
“I’m not the biggest supporter of outsourcing,” Klassen said. “It would take an outside provider to set up all the parameters. At the end of the day, it is very important for the company or the bank to know the data itself.
Knapp gave a different point of view, stating that while he had seen some outsourcing projects that succeeded, attempts to outsource enterprise data management failed. He stated that several factors contributed to this situation, including underestimation of in-house requirements. The market expert later elaborated on how regulations could impact firms’ decisions to outsource.
“From a risk perspective (since we also provide data for risk) there is a huge amount of regulations coming in,” he stated. “It has been quite severe the last month, and I see an opportunity to gather the requirements and see how the data infrastructure is fulfilling these requirements.”
“It could be done from outside, but on the other side, it needs a broad and detailed knowledge of the system setup and the data flows, so it’s not all about data quality. Many of the regulations also regard data flows and operational issues, which is a tough task to fulfill outside,” Knapp stated.
What regulators want
At this point, Cheng weighed in on the demands on regulators, and how they impact data management. He noted conversations held with institutions such as the Bank of England and insurance industry regulators.
“We’ve talked to regulators responsible for data management in the insurance industry, and what they are looking for is the evidence of the accuracy, appropriateness and completeness of data at the point of use,” Cheng said. “They aren’t interested in the quality of the data as it comes from an external vendor or data utility.”
“They want to know what’s happened to the data between the point it comes in to an organization and the point it gets used in a risk calculation within a risk system or in producing other reports and calculations,” he continued. “In order to do that, you need to be able to have evidence – good providence and lineage of that data – and demonstrate everything that’s happened to that data from data validations, data transformations, cross-referencing that data.”
Cheng went on to say that regardless of whether a buy-side firm wants to do data management internally, or instead have it handled by a managed data service provider, they will encounter the same challenges.
“As Christian said, it can be challenging to do that with an external provider, but I would argue that it is just as hard to do that internally … because existing data architectures are built around software tools to transform the data which are called ETL tools (Extract, Transform and Load) and data warehouses that are built just to get the data through and get it to the quality,” Cheng stated.
“They haven’t been built with a view to show each step of what has happened to that information,” he continued. “Any new data architecture has [to] be built with the regulations in mind. What they are looking for is evidence of what’s happened to the data. At the moment, I am not seeing many financial organizations that have the systems in place to be able to do that.”
Klassen weighed in, stating that he can relate to Cheng’s remarks.
“I can really support what you just said, especially in the last project we just did on involving derivatives and central counterparties,” Klassen stated. “You have to report into various trade repositories for different pieces of legislation.”
“The most important thing is having transparency into where data is coming from, what is done to the data and then what is the output,” he continued. “Then, you need to make clear from front to back what is done with your data.”
A different approach to data management
Amid the current situation, buy-side firms will need to work with both in-house data management and external service providers, Cheng asserted. He noted the substantial costs associated with compliance.
“What we hear from of our customers is that because of all of this regulation coming in, one of you said that after all the spending that goes toward regulation, only 15-20 percent is left over for anything else,” said Cheng.
Some clients have indicated they are seeking a different approach to data management in this environment.
Buy-side firms must keep in mind that there is no easy solution to effectively managing their data amid the current market pressures. If they try to take a simple approach, and only focus on managing one concern – such as cost – they will inevitably experience a shortfall in some other area.
Institutions need to take assess the entire situation, and utilize a holistic approach to managing their data. One way firms can increase their chances of finding an ideal solution is working with RIMES Technologies, which has substantial experience in this space.