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Data can be the solution and represent a challenge for achieving optimal target operating models for investment managers. The process of a company’s data assets and investment performance services can present a difficult undertaking. This is why the role of Chief Data Officer is so important and can be one of the most demanding roles for success of the target operating model.
This ‘Performance is Data’ blog will discuss what goes into enterprise data strategy and management. These investment operations are foundational to the entirety of a firm’s target operating model. Investment Performance includes stakeholders like accounting, front office, compliance, sales, marketing, investment management data strategy, data analysis, and more decision makers.
When big data governance aligns with organizational strengths, it can be a strategic blueprint for investment performance services. This blog will examine the advantages of doing the investment process correctly and how an establishment can be revitalized through investment performance services with the Chief Data Officer (CDO).
Knowing that Meradia, an investment management consultant, has countless clients that deal with this type of intersection, they can help companies examine and converge data governance and investment performance.
TRADITIONAL PATHS FOR DATA GOVERNANCE AND DATA MANAGEMENT
Data governance typically begins within the front office operation. Knowing how its role is the main decision-making power is the first step to understanding how revenue is generated, but that does not mean it is not included within the Middle and Back offices. Middle and Back Office Operations, among the accounting and compliance departments, are just as important. Each one can help investment stakeholders by offering strategic intent with strategic objectives and risk management.
Alternatively, investment operations training by Data Governance frameworks can inflict harm to the operational, financial, and reputational business processes. An example of this data strategy involves Personally Identifiable Data (PID). This requires firms to have a lot of oversight; if they do not, they may risk financial setbacks. One can prevent these risks through reliable investment performance services and safeguard the entire organization’s investment operations, financial health, and reputational standing.
A well-defined governance structure will want to collaborate with a wide spectrum of entities, including any people under the Chief Data Officer (CDO). Traditional methods of Data Governance have ostensibly failed to exert a favorable influence at the terminus of the investment value chain. These conventional pathways need a more comprehensive vision to recognize and incorporate fundamental observations pertinent to the entire investment spectrum. Consequently, they need to pay more attention to the function most intrinsically tied to the objectives of Data Governance.
This has caused us to raise a few questions:
What could the CDO learn from Performance?
How could Investment Performance services benefit from the superior data tools widely used by the CDO?
Why not merge these two functions for their mutual benefit?
STARTING WITH INVESTMENT PERFORMANCE SERVICES ARE A NOVEL, BUT EFFICIENT IDEA
Meradia has a unique vantage point where there is an intimate involvement with a firm’s Investment Performance services and their client’s investment portfolios. Daily meetings with a multitude of stakeholders put them in positions of familiarity with defining the scope of these departments. Also, it gives Meradia a level of expertise in areas of Data management and Performance. This piece will dive into more real-world case studies to show how prioritizing Performance in investment operations can embolden the foundational rules and principles of Data governance through key performance indicators.
Performance security normalization could accelerate organizations’ security master efforts and create a digital transformation.
Challenge: Large retail mutual fund clients and many organizations aim to centralize security master data and combine Accounting Book of Record, ABOR and IBOR, Investment Book of Record with an unheld security universe (predominantly securities in indexes that do not yet exist in any internal portfolio).
Typical Approach: Survey the operating model to gather cross-organizational requirements for the security master. Attempt to envision, specify, and craft a project to meet them.
Performance-led Approach: Investment Performance services already integrate data from multiple security masters and across multiple custodians as the data requirements for bottom-up Performance attribution necessitate it. As does ABOR to IBOR return comparisons. If there are holes in coverage for unheld securities, timing differences between ABOR and IBOR security setup, or missing peer funds, Investment Performance already fixes it or cannot do its job adequately. Evaluate the Investment Performance technology and manual workarounds that already fill these gaps.
Performance Reporting has critical inputs to drive consistency of Account and Product attributes.
Challenge: Disconnected operating model, account management and product attributes. Accounting’s view does not align with Client Service’s view, Compliance, or Portfolio Management. Client names, benchmark names, and Client or Internal Aggregations are inconsistent across data domains.
Typical Approach:
- Solicit requirements to extend the CRM (often Salesforce) to include more attributes.
- Aim for enterprise alignment while asking the respective Sales and Client Service teams to fill gaps they may need help understanding.
- Repeat this approach with Compliance and Portfolio Management.
Performance-led Approach: Regardless of the maturity of an account manager or integration with CRM tools like Salesforce, it is often the responsibility of the Performance team to create client-specific outputs that do everything from including a client’s preferred way to refer to its Benchmark to how the client prefers to aggregate its investment assets. Enable the Performance team to update key attributes in the CRM so the rest of the organization can take advantage of what Investment Performance already solves.
Arm Performance with Investment operations training and data governance tools to fast-track lineage.
Challenge: Accounting and some performance functions are outsourced and supplemented by internal analytics (Bloomberg for Fixed Income, FactSet for Equity, etc.). When there are errors, uncovering where the fix needs to happen takes expensive hours. What is the data lineage? Who owns it?
Typical Approach: Today’s consistent lineage and gold-copy element tracking exist within reach of only a minority of firms. When errors arise (or are suspected) in investment operations, it takes time to resolve as many stakeholders may be involved. When seemingly simple questions take days to move through the various stakeholders, it erodes confidence and is expensively time-consuming.
Performance-led Approach: Arm Investment Performance with better data strategy and lineage tools. Performance is already aggregating much of the data but with tools meant to calculate, do not assign ownership and lineage. They, too, would prefer to track these crucial elements but need more sophisticated mechanisms. Standard data tools like Collibra are available to the entire organization, but Performance is often the last domain to be brought into the fold.
Leading with the end view provides context to a firm’s data inventory.
Challenge: Data is siloed, and only some in the organization know about the entirety of data or what is available to whom.
Typical approach: Implementing a data catalog or launching a firm-wide inventory of databases and data within them are common approaches in reliable investment operations. Efforts are often slow, and the objective is only partially met due to the long time frames and the need for more resources. Data governance may be stood up while this effort is happening, further straining internal resources, and hampering efforts.
Performance-led approach: Allow Performance to cite the sources for their data. They have the treasure map of where the data flows and how it gets to them – and what the data is most useful for reporting and answering inquiries for investment operations. This allows the CDO to reverse engineer the inventory of the firm’s data. Creating the inventory from the end forward enables end-to-end insights. It promotes a cross-functional view of how the data is used in internal and external narratives, ensuring operational excellence.
Add Market Data Procurement to the CDO/Investment Performance Function.
Challenge: Benchmark data is expensive – More so when the market dynamics and data providers have a better idea of how an organization uses its data than the organization.
Typical approach: Solving this problem is so tricky that Meradia has come across many firms that opt to buy MSCI’s global license rather than figure out how and who uses specific indexes. Others hope they avoid getting caught or relying on 3rd party vendors like RIMES or FactSet to help govern usage. These helpful tools limit but do not eradicate the issue.
Performance-led approach: Besides aligning the Data Office with Investment Performance services, consider adding the group responsible for market data analysis under the same umbrella. For far too long, the people signing the contracts and the people who best understand how that data management is distributed externally have been in different departments of the operating model.
The use cases that create operational risk are when the data leaves the building. So, align contract provisions with the team that creates the narrative and ensure all unstructured data is tagged appropriately. Marketing and Client Delivery teams know what can and cannot be distributed externally.
CONCLUSION
Investment Performance teams are key players in many companies because they are experts in managing data sets and resolving conflicts. They have a unique perspective that allows them to serve the diverse needs of different stakeholders. It is important to understand how their roles compare to the responsibilities of a Chief Data Officer.
One of the things that sets Investment Performance teams apart is their ability to pinpoint data discrepancies through business strategy. This overall strategy is invaluable in identifying governance issues in operating models and ensuring that everyone in the company has a holistic understanding of data governance. Suppose there is a need to recognize the importance of these teams in the early stages of data strategy. In that case, there is risk in making decisions based on the opinions of those with the most influence rather than on a practical, layered approach.
To ensure that an organization functions effectively, the Investment Performance teams must be given the resources and support they need to do their jobs well. By doing this, an organization can be confident that its data governance practices are sound and that the company is operating at its best.
