Asset owners and fund managers need to better manage the masses of data available in the modern world if they are to build better products, identify investment themes and tailor their services to their clients’ preferences, according to a trio of data management experts.
The executives aired their views as part of AsianInvestor’s webinar ‘Solving the data dilemma: why are data management projects in Asia failing to deliver value?’, which was sponsored by Simcorp.
They argued that the importance of good data management is being increasingly appreciated by companies.
“In 2011, nobody really saw data analysis as being very useful, but now the vast majority of firms say it is a huge value add for their firm,” said Arnie Wachs, the practice lead for data management at consultancy Cutter Associates. “That’s been a huge change in attitude and it’s generating a lot more focus on data quality.”
However, fund managers in particular needed to clean up the data they worked with, given the challenges of legacy systems, the introduction of varying types of software and a lack of unanimity over how to measure and interpret information that is collected.
“You need a plan for a data toolkit that will enable you to get where you want to go, and that means tools for data quality and data mastering and data integration,” said Wachs.
It sounds simple, but he cautioned that it’s not. “You are not going to be perfect at getting everything in place … the real goal is to put [the tools] in place and then decide what you want to do, and use data governance.”
Howie San, domain manager, for data management and connectivity at Simcorp, added that it’s the responsibility of much more than just an investor’s IT department to handle data effectively. “Data touches the front, middle and back offices, so really any data management initiatives should be more encompassing than just being seen as a function of IT,” he said.
“One example is taking data from external vendors. This is more of a commercial function because you need to decide what’s the best data, understand whether it’s fit for purpose and how to maintain it.”
Data has long played an essential role in helping fund managers consider historic market trends and likely relationships between developments and asset movements. But sophisticated data tools can take this to a new level – when correctly applied.
This has moved beyond the quantitative realm, in which funds analyse historical data, into more predictive artificial intelligence routines.
“I’ve seen a number of firms using AI in predictive analytics, to combine news and prices and sentiment and web scraping and so forth,” Wachs said. “This is not just useful for quantitative investing schemes; you can take all that data and do a distillation of it and then use it in any of your investment processes. And you’re getting more and more data from across the world.”
Simcorp’s San added that there is empirical evidence of this, noting that a 2013 study by Chito Jovellanos, president and CEO of consultancy Forward Look, revealed that having timely and high quality data delivered by integrated solutions can raise alpha by 51 to 242 basis points.
Enhao Chua, head of digitalisation and data for Singapore-based UOB Asset Management, said a key part of implementing an effective data process was for fund houses to identify what products they wanted early on, and then focus on accumulating and interpreting the data to support them.
"What is most important it aligning [data collection plans] to what the company would like to do. It could be a three-year or five-year plan," he noted. "So the data that we bring in and look at has to be definitely aligned to the firm’s goals, such as if the company is going to launch a new product in the area of a particular sector."
He added that UOB AM's chief executive Theo Boon Kiat was sympathetic to these needs as he has been taking data management courses himself.
"There is strong support from our management to be more data-driven in terms of how we make our decisions," he said. "Gone are the days where analysts or the fund managers would read news and then say “Oh maybe we should buy or should we sell?”. The decisions that we make have to be more quantifiable."
It’s not just investment processes that can benefit from effective data management. Wachs noted that information can allow fund managers to better oversee their client engagement, by studying how clients use their websites or the reasons they have for calling. That in turn means they can better anticipate what forms of contact work best.
“You can identify the clients that are likely to be buying or likely to be selling, or doing something else, and they identify … the best behaviour for your investment firm,” said Cutter's Wachs. “There’s a lot you can do with analytics about client interactions.”
There’s also the fact that fund managers are likely to be required to improve their data collection and management by both their regulators and their clients.
“Regulators are demanding that firms demonstrate they are managing their data properly and that submissions they give to regulators are based on good data,” noted San. “Regulations like MiFID II in Europe and even the GIPS reporting standards have data quality requirements.
“Secondly, clients are demanding greater visibility into the state of their investments. And it’s going from being costly to being able to see your positions in real time; you can seek how positions are evolving over the last days or even minutes.”
To listen to the full webinar and see the accompanying slides, please click this link.