Let’s Talk About Big Data

As we start another new year…our consumption of data has never before been greater – in the next hour alone we will generate 8.5 billion emails, over 43 thousand new websites, and 144 million Google searches. Huge swathes of data are produced and stored every millisecond and they infiltrate and influence all aspects of both our personal and work lives. This ever growing phenomenon, loosely named “big data”, is driven both by human behavioral changes and technology advancements. When looking at big data through the lense of the asset management industry there are some interesting observations to be had around how the industry is dealing with the weight of big data. Craig Hapelt, a partner at Boston Consulting Group recently said the Financial times, “Everyone is analysing data, that is a given. But analysing it on a very wide scale and bringing in different pieces of data that have not been in place before, that is new.”

Interestingly, the fund industry has been somewhat tentative in taking its first steps into the world of big data. Fintech is a word we regularly hear and a rapidly expanding category, we are seeing more and more fintech start ups emerging and in turn the ongoing development of big data has made collaboration between fund managers and tech firms a necessity, undoubtedly a trend we will see increase over the coming years. Data-driven investment vehicles and machine learning are on the rise, whilst strategies that harness the power of bitcoin and blockchain are creating a very real new world for asset managers. Once the first players in the industry began to dip their toes into these vast and murky waters, a subsequent domino effect has ensued as the new word on everyone’s lips becomes “crypto funds”. Big data and crypto-currency go hand in hand. Over the past few months we have seen a sudden uptick in crypto currency funds as millennials and experienced managers alike look to capitlise on the growth of this sector and harness the power and potential of big data solutions. Recent S&P research produced the “Big data in asset management” report which found that 19% of asset managers expect to significantly increase investments (by more than a fifth) in this area, while a further 63% will modestly increase investments. A massive 82% of respondents considered big data either ‘somewhat’ or ‘very’ important.

Even for the more traditional investment manager the effects of big data are unavoidable; the market itself has gone through a fundamental transformation that can only seem evolutionary. The demands for more and more data seem insatiable and beyond being something a few managers are considering for their portfolios, it is something the allocators themselves are using in their fund selection process. Institutional investors and regulators alike now demand certain capabilities in terms of the flow of data within the funds themselves.

Institutional investors are no longer satisfied with a nice glossy one pager from the investment manager detailing their performance. Well aware of the plethora of technologies out there able to mine this infinite amount of data, investors now demand access to information that would have seemed impossible for managers to even contemplate delivering pre 2008, never mind the now common place ability of investors to digest that information, analyse it and produce meaningful results. The uses for big data in this industry are vast as they encompass processes flowing through the full value chain of a fund; ranging from “client-profiling” and operational risk management, all the way through to the investment process itself.

Schroders’ head of investment, Peter Harrison, agrees that asset managers need to get to grips with big data in order to remain competitive. “Asset managers have got to get much smarter [and] work out how we can use the vast amount of data out there more effectively. Using data effectively will give you the vital, winning edge.”

This new world has created a knock on effect impacting practically everything the fund manager does. Increased due diligence and a focus on quality, service and technology have been the hallmarks of this transformation; with data being the underlying driver of this change.

Investment in new systems and back and middle office personnel can seem a daunting process when a manager is setting out their business plan or reviewing their ongoing operations. Yet it’s these controls that are now tantamount to an allocator’s ability to safeguard their assets. These are the mandates they now give to managers, almost as if they were managed accounts – particularly stringent in instances where they are a seed investor, or the largest investor. Allocators need to protect themselves, at a minimum they are looking for separation and segregation of controls between the manager and the entity responsible for calculating the NAV and performance fee, ultimately, the fund administrator. Yet it goes beyond this now, investors are demanding granular data detail and requiring managers to employ an infrastructure that is scalable and robust to obtain and process the data. The traditional fully flexible access database or excel spreadsheet is just not enough in this data driven world, far enhanced reporting is required; including transparency reporting, performance reporting and risk reporting. These reports are no longer simply required on a monthly basis but sometimes become a daily reporting need. The sheer volume of data recorded needs to be managed and stored with complete accuracy. Timing is crucial in the fund industry and this has led to funds looking externally for expert support to ensure they get this right. Ultimately, the fund’s investibility is impacted by the way in which they manage this process so it is imperative they find a watertight solution.

Inevitably, this demand has led to opportunity. Service providers themselves have had to step up their abilities to remain competitive and supply the level of reporting now required from their clients. At the forefront of this evolution are the fund administrators. Without a doubt, the fund administrator is the best placed entity able to deliver solutions that support the consolidation of data across multiple prime brokers. Institutional technology capabilities are no longer a “nice to have” for fund administrators, rather they are a necessity for survival. Administrators need to be able show that they have the technological tools, from core accounting and transfer agency systems across the board to security masters, pricing and reconciliation tools. Investment in robust systems is no longer an ‘order winner’ but rather an ‘order qualifier’.

To add to the pressure on service providers and in conjunction with the juggernaut that is big data, the asset management world has also been battling with succeeding in an increasingly regulation and compliance driven environment. Again, this is nothing new – since 2008 the fund market has been quietly gearing itself up to the myriad of regulation that has started to his over the past few years; including, Dodd Frank and FATCA in the US, AIMFD in Europe and CRS as a global directive.

At the core of all of these regulatory requirements is the need for increased oversight, control, risk monitoring and ultimately flexibility in reporting. These evolutionary steps mean that Investment Managers are faced with a number of decisions. They can look to implement an internal infrastructure to meet these requirements, investing in technology and people, or look to outside service providers to provide the range of infrastructure and resources to help them comply. In most cases the more economic approach to achieving this, and ultimately the way of gaining the best expertise, is to outsource to an expert.

Apex recognises this need to grow and scale with its clients. The globally distributed services range from basic monthly administration through to powerful customised full front to back infrastructure solutions, harnessing the most advanced and powerful technology in the industry.

In this new environment, flexibility and service must go hand-in-hand with robust risk and control procedures. Being one step ahead of regulation, adopting platforms to meet changing requirements, having the ability to discuss this with clients and thinking ahead to what the end investor requires are all essential to creating a real value added proposition within the administration space. Only by working in conjunction with clients, and embracing new trends and technologies, do we establish a winning platform for them to grow their AUA and provide a quality product for their end investors.

More insights from Apex:

Read our blog on Robo Advisors

Read our blog on The Rise of Fintech in Asset management