Asia to set agenda for investment data management
When Arun Sarwal joined investment management software provider DST Global Solutions five years ago, the funds industry was at an inflection point. A major shift was taking place from equities into fixed income and alternatives, and the rise of emerging markets such as Asia as investment destinations was in full flow.
Such moves were driven by the realisation of substantial shortfalls in pensions the world over and also the desire for a combination of both higher and more stable returns – the former from alternatives. This meant investors, including those in Asia, were seeking to diversify their portfolios into different types of assets and different geographies.
Sarwal spoke to AsianInvestor about the challenges this is bringing about in the asset- and wealth-management industries with regard to managing pools of investment data.
AsianInvestor: Firstly, can we define what DST thinks of as ‘investment data’, because the term means different things to different people?
Arun Sarwal: To pique someone’s interest in the fund management industry these days, you only have to say ‘data management’ and you will get a conversation. The big challenge is indeed that it is means slightly different things to different people. You could compare it to a beach ball: it is spherical, but each person may be looking at a different coloured segment of the ball.
In short, DST defines investment data as that which is created by investment transactions – this includes all transactions, positions and valuations, performance and other analysis, including regulatory reporting.
This includes the layer of analysis that would go on in terms of risk and performance measurement. Performance measurement in the past has been done on a monthly basis, but it is now done on a daily basis – that is an important driver of the changes taking place in data management.
So what do you see as the biggest issues around investment data management today?
Post-crisis, there’s been a major shift into fixed income, although the fastest growth in flows in the past few years have been into alternative investments, due to the search for greater returns.
This diversification has made the landscape for asset managers and owners much more complex. There still isn’t a single system that processes all these transactions – you need multiple processes and multiple pools of data, for hedge fund and private equity assets, for example.
Investment data management was not clearly defined in the past. But over the past couple of years, we’ve seen management of market information being really harnessed; the scrubbing and processing of this data has been done. What hasn’t – and in many ways it’s the bigger challenge – is trying to pull together pools of investment data together across the organisation.
You’ve got everyone trying to pull investment data out to interpret it in a meaningful way. It’s only when one steps back that one realises we are facing a very big challenge.
What challenges would you point to as being particularly acute in Asia?
The central issue with Asia is that it’s not a single market – there are at least 12 active jurisdictions. These markets and pools of assets have increased in sophistication and size, thanks to the rise of home-grown firms and the expansion of foreign players into the region. This will only be accelerated by international firms having more investment capabilities based in Asia and the increasing flows into assets in the region.
To give an example, there’s a large insurer that has over a dozen fund management desks across Asia and therefore that number of silos of data. That’s an extreme example, but it clearly shows the challenges.
Let’s say this insurer wanted to look at their Lehman Brothers exposure after the collapse [in September 2008] across all instrument types across the whole region – that would be a huge struggle.
Quite often we will see investment data in Excel spreadsheets or Access databases. Banks and asset managers can’t afford to do that any more; asset sizes are becoming too big too fast to be scalable using such tools.
The role DST plays is that is bringing that data into a central database and overlaying analytics on top.
Then there is the issue of jurisdiction-specific functions, such as fund accounting. It is likely that an asset manager or servicer would have a separate solutions for doing the accounting and then feeding the results into its investment data management system to aggregate across locations. For example, DST’s HiPortfolio is available across 45 countries and differs in each jurisdiction to ensure the tax elements and local accounting rules, in particular, are up-to-date.
Where are you seeing the biggest client demand for such services?
A recent report from Capgemini and RBS Wealth Management found that the population and wealth of Asia-Pacific’s high-net-worth individuals (HNWIs) has increased at double and triple the rates of HNWIs in the rest of the world over the last five years (2007-2012) and is expected to become the largest wealth market by population as early as 2014. Scaling to service this growth will be a key focus in Asia.
Managing data for private wealth investors affects two things above all: operational risk and customer service. This means making sure banks can get investment information to fund managers and to the regulator on a timely basis, and also to the relationship managers and their investors.
DST recently commissioned research with Aite Group, which found that 78% of wealth managers think regulation is the primary driver for better investment data management. It also concluded that forward-thinking firms acknowledged the improved use of investment data is needed to better manage the business. There is a desire for wealth managers to differentiate in the eyes of the investor, by improving speed, depth and accessibility of investment information.
What are the differences in what wealth managers need as compared to asset managers or owners?
The scale of a wealth business is much greater in terms of the volume of transactions. For example, DST supports one large global wealth management firm operating in the region across five countries; it has several hundred transactions going through a minute and two million end-clients. This is a lot of investment data to organise – timeliness and accuracy are key. It’s crucial to be able to get a client report out on a timely basis and provide current position information via a web portal.
While, as mentioned earlier, 78% of wealth managers surveyed think regulation is the primary driver for investment data management, 75% of the asset managers said internal business requirements and client focus are the primary drivers for investment data management.
Asset managers have also expressed more concern than wealth managers about data latency.
Can you sum up what have been the major drivers in the past year or two in terms of the importance of investment data management?
There are four main drivers. The current tsunami of regulation is one. Another is client demand, particularly from Asian wealth managers, which are more sophisticated in terms of what they require software- and analytics-wise, compared to, say, those in Europe.
Another factor is the growing need for operational efficiency, particularly from the global institutions, but increasingly from Asian organisations as well.
The fourth driver is that Asia becoming a more important part of the global story. This region is becoming a driver of the agenda rather than a recipient of the outcome.