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Wake up to the real costs of data management

Posted by on 03 November 2021
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Data can either fuel fund performance or create operational drag.

Chief Operating Officers, Heads of Operations, and other operational leaders can no longer afford to ignore data management. Whether you lead a small hedge fund or a large institutional asset management firm, it’s time to become data literate.

As data has proliferated, the investment decision-making process incorporates data from various sources—from markets, from your assets and portfolios, from derived and third-party data, and from data in your books and records.

But have you fully integrated data management into your operations? Workarounds work until they don’t. In Enfusion’s experience, most investment managers are only beginning to tackle profound operational change. The real costs of ineffective data management show up in returns to investors. Data tangles can create operational drag that contributes to trade slippage and degrades a fund’s performance.

An investment management firm must align around three business goals:

  • Deploy all the data at your fingertips by optimizing data design
  • Dislodge hidden alpha obscured by noisy data and fuzzy insights
  • Dispel unnecessary operational complexity that hampers workflows

Achieving these goals means adhering to core data management principles:

Principle 1: Data design is everything

Whenever data moves from one format or system to another, risks to accuracy and timeliness increase. For example, if your IBOR and ABOR reside in separate systems, start-of-day and end-of-day position data may drift out of sync because different groups use multiple data systems. Or, when you juggle data across a wide range of asset classes and strategies supported by separate systems, constant disconnects may result.

Ideally, there would be no seams or hand-offs between planning and making portfolio decisions, placing and booking orders, compliance, administrator reconciliations, and back-office accounting. Coherent data design makes that ideal a reality. From portfolio construction to general ledgers and NAV calculations, your operations, from front office to back office, pull from a single source of data, which represents a single and accurate “gold standard” view of the truth.

Principle 2: Noisy data means fuzzy insights

In a hyper-competitive marketplace, the bar for alpha continues to rise, not just investment alpha but operational alpha, too. Creating operational alpha requires constant, lightning-speed decisions predicated on good data.

But, you can lose track if noise drowns out meaningful signals. That noise becomes more likely without an overarching data design, constantly translating between disparate systems, and losing clarity at interface points. Bad inputs affect calculations, leading to fuzzy and ill-formed conclusions.

Likewise, multiple data sources, convoluted processes for updating and maintaining multiple systems, unnecessary workarounds, and data quality issues all magnify noise. You risk losing nuances where opportunities to improve operational alpha are hiding.

Five Sources of Hidden Operational Alpha

  1. Trading against accurate intraday cash versus end-of-day updates
  2. Quicker optionality in response to voluntary corporate actions
  3. Optimizing allocation decisions by evaluating the performance of your third parties
  4. Eliminating delays and workarounds across multiple security masters
  5. Real-time views of positions and weights with instant synchronization between your Portfolio Management System (PMS) and Order and Execution Management System (OEMS)

The solution? Give everyone access to the same data in real time, across multiple funds and a rich range of asset classes. Apply built-in controls to minimize error and data degradation across numerous systems.

Principle 3: Data management is about workflow

Inefficient or risk-prone workflows are often due to data management. For example, it can be challenging in a global portfolio to roll trading from one market to the next and maintain accurate records. As the trading day for each market gains speed, the entire team benefits from access to high-quality data to support investment opportunities. With data on disparate systems, each one must reflect positions and cash in real-time, so traders can start trading as global markets open.

Conversely, one shared global system and single source of data indicate what your investment team has available to trade. Accurate, real-time analytics can then help examine and optimize activity.

With everyone rowing in the same direction, when front, middle and back office all view the same data, workflow becomes more coherent, faster, and less prone to risk. Those, however, with disconnected systems are rowing different ships entirely. As the day wears on, conditions deteriorate, going further and further off-course.

Conclusion

Design, consistency, and efficiency provide the ultimate measures of the real cost of ownership of data sources, platforms, and service providers.

Wrong data decisions impinge on fund performance and the value delivered to investors. Technology costs rise while operating margin shrinks, because suboptimal design impedes workflow.

But correct data decisions remove unnecessary workarounds. Your platform for investment management operations no longer requires stitching together disconnected systems. Better design leads to better workflow and improved operational alpha, which ultimately helps your fund performance.

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