Managed data services provider RIMES held its latest data governance round table in Munich during the DKF 2014 conference, and representatives of buy-side firms – including several leading German asset managers – weighed in on the data challenges they are facing.
Buy-side firms are currently navigating a difficult environment that involves rising costs for their data and increasing demands placed on their use of this crucial information. Many are having a hard time in their efforts to act within the confines of their vendor contracts. In addition, some institutions are not prioritizing data governance, which could undermine their use of this information.
RIMES can help firms address these challenges. The company has access to data from more than 150 partners, and can leverage these helpful resources to meet the information needs of its clients.
RIMES started taking a more active role in exploring the key challenges that exist in the data governance space when it began collaborating with investment management services provider Cutter Associates. The two firms released a report entitled “Benchmarks – not a word but a sentence?” which dove in to the benchmark data management challenges buy-side firms face. It also attempted to explain why the cost and complexity of these activities has steadily increased.
The managed services provider worked with Deloitte on its next report, titled “Benchmark/Index data management and related costs,” which was released in 2013. This document explored various trends in the market, noting that many firms lack the proper internal controls for their vital information. The report emphasized that staff involved with this data spend most of their time on either validation or transformation.
The Data Governance Best Practice Handbook, also released in 2013, gave industry participants concrete steps they can take to attain best practices. The document identified crucial areas that asset managers should focus on, including effective planning, well-organized administration and sustained efforts to maintain compliance.
What difficulties are buy-side firms encountering?
At the Munich round table, buy-side representatives got a chance to identify the major factors that are driving their data governance initiatives. They were given the chance to pick between the following four variables:
- Benchmark data cost management efforts
- Data quality concerns
- Compliance with vendor licensing agreements
- Focus on regulations
“All four variables are affecting our data governance,” said a person working in the market data team of a Munich-based asset manager. “Within our department, we have one team checking data license issues. Before we do something, we have to get authorization that we can set a benchmark up or do a certain qualification. All four parts are needed.”
A market data manager for a leading German asset manager chimed in, noting that factors two and three drive his company’s data policies and procedures.
“I would say that for our internal team, the second point is the most important,” the individual stated. “When you are working in the market data services department, you are responsible for ensuring that the information is complete.”
“From the perspective of the entire company, there are cost issues.” He said that if his company uses data in an incorrect manner and there is an audit, the organization will need to pay a fine.
“We need to manage usage across the organization to ensure that license agreements are followed,” the person stated.
Importance of prioritizing data governance
In addition, attendees answered the question of whether their organization prioritizes data governance at all different levels.
“I think that sometimes people underestimate how important it is to have correct benchmarks. If you have some issues with the benchmark, regarding how much money is being managed against a benchmark, you can suffer substantial losses within the day. You can also face significant expenses if you have issues with your license contract,” said a person who works for the Benchmark Data Team of a Munich-based asset manager.
“I am not sure in the whole process when you start to request a benchmark. Without data management, you don’t have data. You can’t do your reports, you can’t do anything.”
How can buy-side firms evaluate their data governance framework?
Institutions that want to assess their information policies and procedures can consider the current state of the industry, data and players:
- State of the industry: Asset managers are coping with a situation where they are pressured to both manage their data costs and also do more with their existing information. At the same time they are seeking to cope with these pressures, they are striving to meet certain investment objectives.
- State of the data: Asset managers are making an effort to engage in more complex investment management practices that include new strategies and a wider range of assets. They are frequently under pressure to leverage an ever-increasing number of benchmarks to evaluate the performance of their new techniques.
- State of the players: Asset managers are encountering difficulties in terms of data ownership and how this information is allocated. They can face challenges whether they decide to centralize their data or alternatively, spread it out over many different places.
Four Stages of Maturity
Buy-side firms can also measure themselves against the four stages of maturity to assess their current data governance framework. Firms can leverage this outline to determine the stage they are in and the steps they should take to move toward obtaining best practices.
- Non-existent: Companies are in this category if they have not yet prioritized developing the proper data governance framework.
- Emergent: These firms are just starting to work on establishing their data policies and procedures.
- Work in progress: Companies at this stage have conducted some due diligence in an effort to create the ideal data governance framework.
- Mature: To reach this level, firms will need to create the proper policies and procedures at every level of their business and also engage in continuous efforts to better their data management. A small fraction of organizations have risen to this level.
How firms can move forward
Buy-side firms looking to improve their data governance frameworks can use the research reports provided by RIMES and other investment management consultants. Institutions that are looking for practical solutions can look to The Handbook. These firms might also consider having a managed service provider conduct an in-depth assessment of their existing information policies and procedures. These reviews can save institutions some time by pointing out exactly where they should focus their efforts.
For example, several participants in the Munich round table noted they are having a hard time complying with their data license agreements. A few other respondents noted the challenges they are facing in their efforts to manage the costs associated with their key information. In addition, a handful of buy-side representatives noted data quality problems.
Working with a managed data services provider might help these companies develop effective solutions to these challenges.