Using investment data to make better investment decisions
Investment managers are making a lot of progress with investment data management. There is a significant investment in tools and infrastructure and most organisations have a strategic goal to improve the quality of investment data management on the belief that this will drive better investment outcomes.
But is this true? Are we on the cusp of unlocking new investment capabilities that leverages greater insight into our data or are we trying to find a solution for a problem that doesn’t exist?
Recently Shoreline Consulting hosted a series of industry roundtables with leading investment organisations to explore this issue. Here are some of the insights from these discussions:
The need for improved investment data management is ‘real’. Investment management organisations are essentially data-driven businesses. Greater availability of meaningful data to support investment decisions will increasingly provide organisations with a competitive edge with respect to the quality of decisions. This requires organisations to move from the old ‘spaghetti architecture’ model to a more structured model that promotes access to reliable and clean investment data.
It is still early days. Whilst there is not yet overwhelming evidence of organisations changing their investment processes to benefit from improved data, most organisations have still been focused on getting the data ‘foundations’ right to ensure there is access to reliable ‘source of truth’ data. This should provide the platform for improved analytics that will directly contribute to the investment process.
Vendors are joining the party. Back in the mid-2000’s there were basically no specialist data management vendors in the Australian market, with Eagle being an early entrant to the market. Times have changed and there are currently more than 10 specialist data management vendors and Custodians are also waking up to the opportunity. This is presenting organisations with plenty of choice when it comes to solutions.
But we are not out of the woods yet...
Even though we have made a lot of progress, there is still the risk of the 'white elephant' solution. Front office teams are often relatively dis-interested stakeholders and many haven’t yet changed their investment processes to benefit from greater availability and quality of investment data. To avoid this ‘white elephant’ risk, we believe that some essential steps are needed to ensure organisations get the full value from improved investment data management. In short…is it time for Investment Data Management (IDM) 2.0?
What is IDM 2.0?
IDM 2.0 refers to completing the ‘last mile’ of an investment data management project. IDM 2.0 builds on the foundation of earlier data management projects that were primarily focused on improving the operational management of investment data, by specifically focusing on providing investment teams with the right data at the right time to help them make better investment decisions. Some important characteristics of IDM 2.0:
It starts with the investment process – By understanding how investment decisions are made, it identifies the key information needs supporting these activities and ensures that the right data is provided to support these.
It recognises the differences between investment teams – Whilst at first glance the investment process may appear the same between teams, there are subtle differences that may mean different data is needed. IDM 2.0 should understand these differences and adapt the investment data accordingly.
It builds in organisational change management. For any data-related project to be successful, there must be an agreement for the recipient to change their business processes to benefit from the improved data being provided. Unfortunately, within many investment organisations there is a hesitation to enforce these changes onto investment teams. Our view is that IDM 2.0 should have the mandate to both encourage and direct these changes through an appropriate balance of ‘carrot’ and ‘stick’.
It delivers change incrementally - Rather than delivering through ‘big bang’ changes, IDM 2.0 should be rolled out progressively with the emphasis on smaller incremental changes. This will help investment team’s direct areas of priority and will limit the amount of disruption to their existing investment processes. Further, by delivering ‘something’ earlier we can avoid the fatigue associated with long waterfall type projects that save up all of the benefit for the end of the project that is often long after the time when people actually needed it!
We are at a cross-road when it comes to investment data management. There has been a lot of good progress and we are finally getting the foundation right. However, success can only be achieved when this new capability is contributing to better investment decisions. Otherwise, investment data management may indeed be remembered as the ultimate solution that never actually found its problem to solve.
Bruce Russell is director at Shoreline Asset and Wealth Consultants.