Asia-based institutional investors are taking a more proactive approach to investing in data management than their European and US counterparts, according to a data analytics expert.
With a surge of regulations coming out of the West, asset managers and asset owners there are being required to turn to data analysis, whereas their Asian counterparts are applying the methods from a business point of view.
But whatever their motivations, fund managers’ need for quality data is being viewed as universal.
Given that institutional investors based in Asia have a bias towards investing within their region, one of the biggest challenges for them is to align different data sets. This is due to the varied environment that investors can face, including working with numerous currencies and rules that the more unified markets of the US and EU may not face.
But with significant global regulation coming out of America and Europe, institutional investors in those countries are being forced to take a more reactive stance when dealing with large quantities of data.
“One of the absolute drivers in Europe and in the US – call it data dexterity – is regulatory pressure,” said Jessica Donohue, head of the research and advisory business at State Street Global Exchange. “The regulatory pressure in Asia broadly is probably not at the frenzied peak of Europe.
It is just a huge driver for the need to harness your data and although regulators in the region are very aware and pushing forward on innovating as well, it maybe isn’t the same level of urgency as you hear from Europe and the US,” said Donohue.
With major pieces of regulation migrating from banks to asset managers and insurers, increasing number of regulators are keen to know, for example, how funds, especially large retail products, will react when market downturn leads to redemption. For example, do they hold the right types of assets to liquidate?
"To actually be able to understand the liquidity within your portfolio, the redemption you might find yourself subject to, and to come up with a solid answer for your regulator, is non-trivial,” said Donohue.
But whatever the driver that is making asset owners and fund managers call for better quality of data, the need for it is universal. A new report commisioned by State Street ('The Innovator’s Journey: Pathways to Data Dexterity') surveyed 400 investors, with 81% viewing data and analytics as one of their top strategic priorities for the year ahead. Asian investors are not far off the global average, with 77%.
Opportunities to mine data to better understand market risk are increasingly abundant.
Donohue cites the US use of data analysis to better understand the risk of mortgage-backed securities, such as which bank generated the mortgage, the individual who actually owns the mortgage and the location of the properties.
“There is just not enough information as to the risk that sits behind the underlying mortgage-backed securities,” said Donohue. “That is part of the reason why we had the crisis.”
Unstructured data analysis can also be applied to alternative investments, such as real estate, which can help generate insights such as understanding the tenant structure of a property and who they are, as well as the demand for it.
More advanced uses of data analytics can also be used to draw in existing data to help make business decisions, which broadly can help pinpoint sentiment indicators about a particular industry, sector or security – an area where BlackRock is currently active in Europe and the US.
But whether companies are able to dig up data for their use is another question. A total of 27% of global investors surveyed say that they are only just starting to invest in data management; 36% claimed to be “actively moving toward better data governance”; and 37% claimed to have advanced data infrastructure in place.
Split between this, Donohue noted that asset managers are also likely to be in a more advanced stage of exploiting data than asset owners themselves.
She reasons that asset managers tend to be more focused, whether that may be on equity, fixed income or more specific asset classes or regional classes.
Meanwhile sovereign wealth funds, central banks and large pension funds are in a more complex situation as they tend to have a more diversified portfolio in asset classes, including more opaque investments such as private equity.
“For an asset owner, they may have 10 to 20 external asset managers and they might in addition have internal asset managers, so they have to bring together external asset manager positions, internal asset management positions, and market data information,” Donohue said. “That is a huge ask.”