@Pixabay.

Bespoke technology for bespoke assets?

Middle and back-office managers’ need for technology to deliver timely and efficient information is nothing new. However, as the market moves into managing more niche, bespoke, and complicated assets that require different kinds of information, the task becomes more cumbersome. 

The issue then becomes: what is needed from a technology lens to properly service bespoke assets?

This question was put to senior industry figures in a recent Clear Path Analysis webinar titled, “Who is actually in control: Understanding investment risk, challenges, and solutions for asset owners and insurance professionals”, which featured in a new report, “Effective investment risk and data management for asset owners and insurance professionals”, published in conjunction with Rimes Technologies. 

"For instance, here in the marketplace, with Silicon Valley Bank (SVB) and First Republic [bankruptcies earlier in 2023], all of a sudden there is a bank run, which happens immediately."

In the webinar and report, David Mellars, Head of Middle Office Solutions Analytics and Trading, FactSet and Rob Weber, Head of Sales, North America, Rimes gave their views on this area. 

One aspect of this question about technology was highlighted by Weber, who said that timing was critical – which means many different things to do in different facets of the industry. “For instance, here in the marketplace, with Silicon Valley Bank (SVB) and First Republic [bankruptcies earlier in 2023], all of a sudden there is a bank run, which happens immediately. Within the industry across the globe, everyone now needs to know their exposure to SVB and First Republic,” he said. 

A 2019 paper by Blackrock said that “investment, operations, and risk professionals should be closely involved in the creation and ongoing oversight of any model or system that leverages [technology such as] Artificial Intelligence or Machine Learning, ensuring transparency into the underlying processes used by the technology.”

It added that, “asset managers rely on vast quantities of data, including from external data vendors. Thus, data quality and robust production monitoring should be of the utmost importance to reduce errors and mitigate operational risks.” 

“Technology has to react quickly whilst preserving the terms and conditions around valuation, so investment teams have the necessary information to do their jobs.” 

Weber gave further examples of technology necessity to operations, mentioning Russia’s invasion of Ukraine last year as a particularly pivotal moment. “People needed to know their exposures immediately in these cases,” he said. “However, knowing this data won’t fundamentally shift asset allocation, so it’s a bit of a dichotomy. There’s a spectrum in terms of how much immediate data will change asset allocation. It might not, but we still need that information immediately to answer necessary questions and understand how it will impact investment decisions.” 

From a technology lens, Weber specified that timelines can be a challenge – especially, for example, when getting into the nuances of when data sets are provided in the private space and when the information is valued. “Often, there is a lag between when the valuations were made and when the datasets are provided,” he said. “Technology has to react quickly whilst preserving the terms and conditions around valuation, so investment teams have the necessary information to do their jobs.” 

A 2022 paper from McKinsey listed common issues many organisations encounter with technology and how it hinders or changes the way they can use their data. One solution they gave was using data as a product. “We find that when companies instead manage data like a consumer product – be it digital or physical – they can realise near-term value from their data investments and pave the way for quickly getting more value tomorrow,” the analysis said. 

Weber built on this theme and added that these departments need to be able to consume, aggregate, and consolidate data sets, “but also preserve the information that goes into these various asset classes, so that investment teams can make judgements and properly run their macros, routines, and analyses.” 

Mellars agreed – especially with the example of SVB. “I would like to take it a step further, looking at the downstream effects of Credit Suisse and UBS. When something like that happens, we typically look at equity. However, in the Credit Suisse example, they had a lot of convertible notes and continuing convertibles, and there were a lot of challenges in terms of what your exposure was, given how much they lost,” he said.  

“There is a need to go deeper and look beyond your stock exposure at your exposure to the rest of the capital structure – and how you can understand that across your investments.” 

Data transparency 

Building on this idea of treating the needs of technology in a more exacting and preferential manner, the panellists discussed the large role of data transparency. 

Data transparency is is both “the ability to easily access and work with data no matter where [it is] located or what application created them”, and “the assurance that data being reported are accurate and are coming from the official source”, said Hubspot, focusing on customer-centric angles. It also “provides customers with an inside look into how their data is collected and used.” 

“This data usage must be ethical and within the confines of the law. With data transparency, customers should know why you need their data, how their information is gathered, where it is stored, and how it is protected.” 

A State Street report said there was demand for data transparency around ESG issues. “Alternative asset managers are facing evolving demands from clients that expect data transparency and ESG factors integrated into investment analysis,” it said. “This can be a significant challenge if data and operational models are fragmented or out of date. Managers that embrace technology, upgrade their systems, and work with a skilled partner will be ready to face up to the demands of their investors.” 

“This issue is about consistency and ensuring that data persists. When information trickles in, it’s important to know it is finalised – or locked – so that it can persist."

Given these factors, Mellars thought a holistic view of data was paramount to make sure nothing was being missed. 

“This issue is about consistency and ensuring that data persists. When information trickles in at the end of the month, it’s important to know it is finalised – or locked – so that it can persist,” he said. “You need to know you’re making decisions based on trusted and governed numbers.” 

The other key factor, Mellars added, was ensuring decisions were being made based on data that had been finalised across entire firms. “Investment teams need to make decisions off of the same data, especially when it comes to compliance and regulatory issues, where we could be looking at numbers that were initially intolerant but once finalised were out of tolerance,” he continued. 

 

Please Sign In or Register to leave a Comment.