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Accurate and timely data is one of the golden currencies in investment asset management, especially if dealing with an investment book of record. Data pipelines are metaphors in investment conversations that serve as a movement of data from its source to delivery points.
Often, investment asset management firms and asset managers have relied on multiple pipelines for different data sources such as cash positions, total net asset value, regulatory demands, and other regulatory reporting to make the right investment decisions. This blog will explore modern data pipelines in an investment book of record and how asset managers use them to make investment decisions.
DATA PIPELINE DEFINITION
Data pipelines are mostly metaphors, but they commonly refer to moving data from its origin to its intended destination. The three primary stages are: Ingest, Process, and Store. More recently, modern pipelines have five stages: Ingestion, Processing, Storage, Analysis, and Serving.
- Ingestion means containing real-time data sources that can include structured and unstructured data.
- Processing is where data validation and cleansing occur. When transforming data, you want to ensure it is consistent and of high quality before processing.
- Storage is self-explanatory. It stores the processed data within its data storage systems, including SQL databases, Hadoop, Apache Spark, Good Cloud, Amazon S3, and Snowflake.
- Analysis is examining data and statistically modeling it within a specific algorithm. The goal is to support patterns, trends, and insights that can help the investment decision-making process.
- Serving: At this point, the data analyzed serves the investment firm. This process occurs by feeding the data to specific business units and taking it to other systems to be intact for long-term storage.
INVESTMENT BOOK OF RECORD
How does this tie into IBORs? Companies typically have multiple data pipelines tailored to specific data sources such as ABOR, IBOR, and PBOR. An investment book of record can help back office and middle office teams, like analysts, determine cash positions. Analysts can establish these pipelines through point-to-point connections or data-sharing mechanisms.
CASH POSITIONS ISSUES WITH TRADITIONAL DATA PIPELINES
Investment books of records often rely on traditional data pipelines, but these systems can face a variety of challenges that can hinder investment decision-making. One of the most prominent challenges is the existence of point-to-point connections. This issue is often a result of the traditional business models used by asset managers, where each department independently funds its own IT projects, resulting in isolated pipelines that only serve a few specific purposes.
This approach can lead to significant challenges over time, as isolated data pipelines can cause more issues than solutions for portfolio managers and investment decision-makers. Additionally, duplication of data quality measures, data checks, and transformations across different data pipelines can create a cumbersome and inefficient process. This complexity can increase costs and create difficulties for the back office, middle office, and asset managers in handling essential functions such as client or regulatory reporting, position data, and investment activities.
In addition to these challenges, traditional data pipelines also suffer from limited scalability and a lack of flexibility and agility in adapting to changing market conditions and new investment opportunities. This can lead to missed opportunities that can negatively impact an investment firm’s bottom line.
THE MODERN DATA PIPELINE FOR INVESTMENT MANAGEMENT
What is a modern data pipeline? A modern data pipeline is a streamlined and effective method of managing and analyzing data. It involves bringing in data from various sources, such as market data feeds, trade execution systems, and client portfolios, and then processing that data to provide accurate and timely insights for decision-making.
A modern data pipeline also involves sharing and connecing data across different departments and systems. By breaking down silos and encouraging data sharing, a modern data pipeline enables a holistic view of investment functions and assets. This approach reduces duplication of efforts and ensures data consistency throughout the organization.
And don’t worry – a modern data pipeline isn’t a free-for-all. It still operates within a governed framework that prioritizes security and performance. Certain sensitive or high-volume data may still require point-to-point connections. Still, overall, the focus is on reducing silos and increasing data sharing to drive better decision-making and overall efficiency.
BEST PRACTICES FOR MODERN DATA PIPELINES AND ASSET MANAGERS
Implementing modern data pipelines in investment asset management involves following these best practices:
1) Aligning business data delivery methods: Depending on the business they’re working with, companies should align how they deliver data. Make sure to identify what ways of data sharing would work best for one client vs. another. These point-to-point connections depend on factors like volume, data sensitivity, and other latency requirements.
2) Weighing the cost of change vs. benefit: It’s important to know and evaluate the cost of change against the expected benefits. For instance, if you reduce maintenance efforts and costs, will it affect access to the data differently? You may want to avoid migrating to a modern technology program altogether if the costs exceed the benefits.
3) North Star approach: The ‘North Star’ approach involves establishing a goal that aligns with one objective. In this instance, the objective is to eliminate point-to-point data and encourage risk data sharing as the primary data transfer method. Using this philosophy, you are more on a journey rather than a project, which can be more encouraging to complete.
4) Designing a flexible framework: Investment firms should design a flexible framework that accommodates evolving data needs for their investment book of record. This framework should provide transformation, data ingestion, governance, and observation guidelines. The more a company adopts the framework, the more benefits it can have.
5) Data observability: It is important to consistently monitor and track data performance in any situation. Once you’ve done it right, you can see very quickly when there are job failures, data latency, resource utilization, and other system metrics. Try using dashboard tools and centralized logging for even more effective monitoring.
6) Maintain balance with centralization and flexibility: When working with data, there’s always room for balance and flexibility. Make sure everyone, including analytical teams and developers, is on the same page so that you can observe, access, and secure data correctly.
CONCLUSION
By following best practices and leveraging expert guidance, companies can optimize their data management processes, improve decision-making capabilities, and gain a competitive advantage in the dynamic investment book of record landscape. In today’s market, where one in six asset and wealth managers have expectations to consolidate or close by 2027, it is crucial for companies to view data as an asset.
In this ever-competitive landscape, organizations must adopt the most efficient modern practices to maximize their return on investment and outperform their competitors. By implementing modern data pipelines, companies can leverage the power of data to gain any edge against the competition. If you are looking to stay in the game and lead the pack, investing in modern data pipelines is a smart move.
MERADIA’S EXPERTISE IN MODERN DATA PRACTICES
Meradia understands the ins and outs of the investment operations and middle office outsourcing industry. As a trusted leader in this field, they offer unparalleled expertise in modern data practices that can help your organization stay ahead of the curve.
Meradia is well-equipped to assist you in designing and implementing efficient data-sharing mechanisms for your investment book of record and other multiple systems to make more informed investment activities and decisions. They can help you migrate from point-to-point connections, understand your investment performance and data management, which can be time-consuming and prone to errors, and establish robust data governance frameworks that ensure compliance and consistency across your organization.
Contact Meradia today to learn more about how they can help you optimize your investment and asset management data solutions, investment book of record, accounting system, front office, middle office, and back office functions, and more.