With data analysis becoming increasingly sophisticated as technology advances, asset management companies need to have the right processes in place to maximise the benefits, delegates at AsianInvestor's 2nd Chief Operating Officer (COO) Forum heard last week.
They also need to transcend back-office, front-office, and other organisational divisions, upgrade the skill sets of their staff, and work out how best to deal with tech-empowered regulators, a panel of experts told them.
Figuring out how to glean actionable insights from big data is probably the number one challenge for fund houses, Sanjeev Malik, Asia-Pacific head of technology and operations at BlackRock, said on the panel.
“If you have the right data at the right place with the right technology you can get some amazing insights, whether on your client, whether on your products, whether on the market, and it’s amazing,” Malik said.
However, the need for clean data is paramount, especially given the increasing use of data-driven artificial intelligence and machine-learning algorithms.
“If the examples are not right, if the data is not right, it’s garbage in and garbage out,” Malik said.
“All data is rubbish until you can derive useful insights from it, so our own challenge is to make sure that what we have is clean,” Andrew Chan, Asia-Pacific COO for Columbia Threadneedle Investments, said on the same panel.
The key is to set up consistent processes where right from the point of data acquisition, whether it’s coming from index providers or exchanges, or its being manually entered, the entire chain of data remains at a high quality, BlackRock’s Malik said.
One way Columbia Threadneedle is using data is to help improve the performance of its portfolio managers. “We’re trying to understand in using such data how to help portfolio managers become better at generating alpha,” Chan said.
Just like how someone driving a car might drive more carefully after narrowly avoiding an accident, portfolio managers might change their investing behaviour after making a mistake, he said. “On the other hand, if he’s made a few very successful investments, made the right calls, picked the right analysts to give him feedback that he then used to deliver alpha, he might become overconfident,” Chan added.
By analysing data on the portfolio manager’s investment decision-making patterns, Columbia Threadneedle can then help refine the way that they manage money, Chan said.
This is especially important with the advent of machine learning and sophisticated pattern recognition in the industry, he added. “Everybody’s going to be able to generate alpha, so a true alpha generator becomes invaluable.”
Data can also help with something BlackRock refers to as operational alpha, which aims to reduce errors and increase efficiency within the operations of a business.
“Data plays a big role in reducing the errors, so for us to generate operational alpha the focus on data from the team is intense,” Malik said.
TECHNOLOGY AND REGULATIONS
Despite the advantages that technology and data can bring to Asian asset managers, their impact on regulatory implementation and enforcement in the region can present challenges to the industry as well.
“With each regulator now enjoying the benefits of cheap technology, they can enforce the rules, they can change the rules, as opposed to say 20 years ago when they had the rules but they had no idea who was doing what,” Columbia Threadneedle’s Chan said.
An upshot of that is that markets are becoming increasingly fragmented.
With monitoring and enforcement made much easier for regulators, each political jurisdiction is able to enforce regulations that promote local firms over foreign fund houses. “The incumbents that dominate are going to keep everybody else out as far as possible,” said Chan.
With the variety of regulatory regimes in the region, asset managers also need to consider the different restrictions on technology, especially in the area of data management.
For example, BlackRock’s proprietary Aladdin system, a risk-management data platform, is unavailable in Korea due to regulatory challenges on data privacy, Malik said.
Clearly, with the growing role of technology in the industry, COOs need to consider how to better align the operational aspects of the business with the technological side.
Among the top priorities is to identify people in operations that are tech savvy and use them to bridge the gap between operations and technology.
“One of the initiatives that I’ll be leading globally is to really find those technologists in our operations space and make them the culture carriers for the next three to five years,” BlackRock’s Malik said.
“What we’re trying to do is to find one or two technologists in each operations small team who are really working closely with operations, embedded as part of the team, and it’s not like they are part of operations or tech – they are actually part of a tech and ops organisation,” he said.
Malik expects this blending of operations and technology to change the way businesses think about their organisation, with terminology like front office, back office, operations, and technology eventually disappearing.
“At least in BlackRock, over the next 12 to 18 months, within the tech and ops areas, we’ll see some changes in terms of how people think and operate,” he said.
UPGRADING SKILL SETS
Another priority is making sure operations team members are up to date with how the firm is incorporating technology into its operations.
“Skills development for existing talent, which is probably the hardest thing to do, is still the most important, especially where the technology is driving change today,” Malik said.
At Columbia Threadneedle the aim is to identify individuals who want to be a part of the firm’s technology strategy, even if they lack the required skill set.
“Their aspiration is to stay, but they need skills to help them get there, and our moral obligation is to help them get there because we don’t just hire for the sake of firing,” Chan said.
“People you help will pay back over time because there’s a sense of loyalty, a sense of belonging. To me, technology is just a tool,” he added.
The key to ensuring the success of skills development is to tie the training into what is important for the business on a day-to-day business, Malik said.
“If it’s not relevant to us today, that doesn’t mean it’s not important technology, but if I’m not working on it tomorrow, it just becomes a theoretical exercise,” he said.