Solving the Middle Office ‘Data Crunch’
Pressure from regulation, investor due diligence and operational risk control is pushing investment firms to find better ways to manage data. Now, more than ever, data management is central to the investment managers’ day to day business operation.
Key data and information is found throughout an asset management organisation but nowhere is it more critical than the so called middle office, that part of the business that can offer decision support, compliance and control, facilitate management reporting and provide client facing information.
The challenges of data management
Over the past decade, data management has grown in importance with a concerted effort across the industry to solve the reference data inconsistency. Vendors have identified this opportunity and offered solutions that help create the ‘gold-copy’ of reference data that is utilised across internal/external systems, infrastructure and analytical engines.
Now, an even more pressing data management challenge faces the industry. Stakeholders, both internal and external, are demanding more information, quicker and presented bespoke to the individual. This can be seen as the middle office ‘Data Crunch’. Increasingly, the middle office is viewed as the central point for all relevant information and is being asked to facilitate management, consolidation and delivery of business critical data. But do they have the tools available to consistently deliver quality and timely data, allowing for flexibility in content and format?
Growing complexity in investment products has resulted in the emergence of complex system infrastructures and architectures derived from individual best of breed solutions to best manage, analyse and support new investment strategies and assets. This best of breed approach has resulted in asset managers renting, owning, building and subscribing to a plethora of systems and solutions covering the back, middle and front offices. Some firms have opted for single solution architectures; however, this approach often fails to fulfil the requirements of all stakeholders.
Best of breed system and solution fragmentation is magnified by geographical dispersion as global businesses have grown through acquisition and market expansion. Typically, solution architecture has not followed in support of this and disparate operational hubs exist. This creates an issue when trying to understand, control the business and provide required information to regulators. Fragmentation, whether by system, geography or both, has created significant operational issues and risks, including higher costs, duplication of effort, and lack of operational control.
Consequently, the typical asset manager often fails to take full advantage of the data and capabilities they have available. Their market data feeds, systems and services have created a wealth of information - yet key stakeholders across the organisation often still cannot access the information they require and that they have invested so heavily in.
The ability of the middle office to co-ordinate, analyse, and support the business and decision making process is critical to operational success. Creating a middle office capable of collaborating across analytical disciplines and departments will be the most effective design. A siloed approach across the business only adds to the fragmentation and increases operational and business risk. Given the right tools, the middle office can facilitate all required information and control to satisfy all internal stakeholders and external consumers of data.
Meeting stakeholder demand for information
There are a number of critical internal and external stakeholders of middle office data, all with varying requirements and demands.
Internally, data is vital to understanding decisions made, as fully understanding the risks and opportunities are of primary importance to senior management. A holistic view of all areas within the organisation will help create a governance, compliance and control structure that will deliver benefits in terms of operational risk management, investment decision support, client retention and acquisition. To support this, data has to be gathered from a number of underlying systems across the business, such as risk management, performance measurement, finance and CRM.
However, it is often not just about gathering the data, it needs to be consolidated in a manner that allows the user to interact and delve deeper to find answers. Additionally, it is insufficient to just present data, additional analysis has to be performed across the entire middle office data set. The best of breed system architecture has prevailed and, therefore, elegant consolidation, aggregation and visualisation of all data in one place, irrespective of source is required.
The impact of regulation
Post Global Financial Crisis, there have been numerous regulatory interventions across the world that will have an impact on business, yet in many cases the regulations are relatively ambiguous, so that meeting the regulators’ demands will not be straightforward and the full implications of them will only emerge over time.
The regulator is a key external consumer of middle office data. Ensuring that the business is best placed to meet regulation, deliver required reporting and ensure that if there are any demands from the regulator, the business can quickly, efficiently and cost effectively deliver it, will be vital. A co-ordinated system architecture can make this possible, and central to that is the investment data in the middle office.
Clients demanding more
The clients of asset management companies have increased their requirements with investor due diligence, which is now central to the fund management selection process. It is becoming clear that clients are going well beyond merely monitoring performance.
Following on from the recent crisis and scandals, such as Madoff, investors have developed an increased awareness of operational and business risk. Being able to prove that as an asset manager you fully understand your business, the key risks to manage and your investment process can only increase chances of success in client satisfaction and retention.
Investors are demanding ever more detailed levels of transparency and granularity, a demand which will touch on all areas of the business. To ensure strong client retention rates and increase client acquisition levels, asset managers have to be able to meet many demands. A co-ordinated and strategically focused middle office data strategy is one way of meeting them.
Meeting the demands of the middle office ‘Data Crunch’
The middle office ‘Data Crunch’ is not a new phenomenon; however the demands placed on the middle office are increasing and will continue to do so. Should the middle office operate in separate analytical siloes, each working independently of each other, whilst at the same time internal and external stakeholders are continuing to ask for more data, more quickly and more regularly? There has to be a better way to operate, allowing those members of the middle office to become not just performance and risk analysts but add value across the business by analysing more cross discipline data and working in collaboration with colleagues from other parts of the business rather than working in independent units.
To enable this there needs to be a single source of middle office data, consolidating all third party analytical engines, creating consistency and clarity of information for all stakeholders both internal and external. The ability to deliver the right data, to the right person, at the right time and in the right format for the end user, should be a minimum requirement, whilst at the same time considering the likely future demands of key stakeholders. Those firms which successfully meet the ‘Data Crunch” challenge will be well-placed to grow their businesses, secure in the knowledge that they are best placed to meet the inevitable industry evolutionary challenges that lie ahead.
Graeme Condie
Director, Data Management & Analytics Solutions Strategy
DST Global Solutions
The full version of this article appears in the ‘Fund & Asset Management Technology ‘ report recently published by ClearPath Analysis. A copy of the full report, featuring 7 major features from various industry commentators, is available, free of charge
