Asian asset managers and owners lie some way behind their European and US peers when it comes to analysing portfolio performance and assessing risks.
That is a potential concern at a time when portfolios in the region are becoming more complex and diversified.
“As Asian markets grow in sophistication, I’m finding that asset managers are using risk and performance analytics systems that don’t provide the rigour needed to meet client demand, relative to the US and Europe,” said Pat Reilly, vice president of fixed income analytics at FactSet, a US-based analytics software firm.
Several market players argue that it’s a mistake for regional investors to fail to take analytics seriously. The cost of investing into analytics capabilities can be high, but it pays off in the long run, said Ali Nezamoddini, head of investment performance and risk analytics at Singaporean insurer NTUC Income. Such investment can provide a significant advantage over other institutional investors and fund managers, he told AsianInvestor.
“Strong analytics requires rigorous systems and streamlined processes,” added Nezamoddini, “so that valuable time and effort can be spent on performing analysis to gain insights rather than fixing data issues or rectifying process failures.”
Some firms are recognising the need to invest. Wee Tian Sing, chief risk officer for Singapore at Eastspring Investments, said fund houses in Asia had been investing in data management, performance and risk systems.
“It’s all about demand and supply,” he noted. “As investors demand more innovative portfolio solutions, asset managers manage more complex products and the risk and analytics teams need to manage more challenging data.”
This comes down not only to changing product types but also the increasing globalisation of portfolios, said Wee. For instance, he noted, “Asian houses may not have had to worry about Brazilian or Polish bond data in the past, but now they do”.
Fragmentation and regulation
The ability to effectively analyse portfolio investments is arguably more pronounced in Asia than other regions, because there are many markets with widely varying regulations. These are issues that the US, and to a lesser extent the European Union, do not have to contend with.
“In Asia, many countries have very different conventions or very specific requirements, especially on the fixed income side,” said Alex Ko, head of the chief investment officer’s office for Asia Pacific at BNP Paribas Asset Management.
For example, he told AsianInvestor, obtaining data and measuring performance and risk for portfolios of local-currency bonds is more challenging in Asia than in Europe or the US.
Meanwhile, regulators in the region are increasingly looking at areas related to performance measurement and risk, such as liquidity risk, added Ko. It is more difficult to measure and manage liquidity risk for certain asset classes, such as fixed income, due to its over-the-counter nature, he noted.
FactSet’s Reilly made a similar point: “As firms look outside their countries’ borders for alpha, overcoming the operational constraints posed by unique asset types is paramount.
It is essential to have flexibility in the performance analysis toolkit, he added.
“Pursuing a one-size-fits-all approach across such a broad universe of investors, asset classes, security types, and levels of client sophistication is a sure recipe for failure.”
To attend a live, in-depth discussion of these issues, you can register for a complimentary webinar, to be held next week. The event, 'How better use of performance data and analytics can boost investment returns', will be hosted by AsianInvestor and FactSet on September 12. Click on this link for more details.