Capitalising on today’s data management dynamic
By John Randles, Founder & CEO, Bloomberg Polarlake
Published: 14 October 2016
Having entered the market offering new and unique investment strategies, hedge funds tend to try to find their own way when it comes to introducing supporting technology and processes.
Many have chosen to cope with business and regulatory requirements by creating and implementing an internal technology stack. They either built their own solutions, or bought packaged applications, believing this would not only allow them to meet their exact needs, but also deliver competitive advantage by leveraging their firm’s DNA.
Over the last 10 years, however, the reality is that more generic demands have entered the financial markets, ranging from regulation and risk management, to data governance and reporting. These demands have increased the rationale for a data management utility.
The need for a data management utility
The one constant across recent developments has been the need for accurate data, without which there could be no hope of meeting regulatory and business requirements, and improve cost management and operational efficiency. Although hardly a new concept, the regulatory and business demands surrounding data are widening considerably, leading to increased demand for:
- Improved data quality
- Transparent data governance
- Rapid integration with ever changing business processes
- Improved operational control and cost management
Hedge funds are again confronted with a range of possibilities, from building their own technology solutions, managing vendor and internal data via their own data management teams, to outsourcing technology, staff or both.
But having gone through these options already, they have come to one major conclusion: –”here is one arena of our business that is common across the industry - we all have to manage data.” As a result, the search is on for a data utility.
Simplifying data management
But what should an industry-wide data utility provide in order to meet the needs of the largest and smallest of its users, at a cost that matches their individual business needs? Above all, it has to simplify data management for all of its users. As a result, this must deliver lower data management costs. The data utility must improve data quality, cleansing and managing data across multiple data sets. To allow all users to benefit from industry-wide knowledge and experience, automation must be applied wherever practical.
It must deliver in-built data management processes ranging from data vendor notification management, and physical data delivery to the application of data quality rules and exception handling. These processes should be available over multiple data sets ranging from instrument data to pricing data, index data, corporate actions data, positions data and legal entity data.
Challenges and key requisites
The term “utility” doesn’t mean sophistication isn’t needed. Linking data sets is key to a holistic approach to data management, which is what regulation ultimately requires of hedge funds. Whether it be AIFMD, EMIR, MAR, Form PF, MiFID 2, Solvency 2 or UCITS; data quality, data interdependency, data governance and operational and process control of data are all key to meeting current and ongoing regulatory requirements.
Equally, transparency and governance must be supported at a minimum by quality audit trails which not only record data changes and lineage, but also record changes to business rules and the application of exception processing. Firms should be able to choose which components they wish to use, the data vendors they need for specific tasks and volume of data they receive. In essence, they need a national grid which offers content as required.
They must also be able to choose the level of service they require. This could include deciding whether exception management is to be handled by the utility or by the firms themselves.
Visibility is also essential. Access via data management workstations to visualise the processing of data through the utility must be available, at a minimum. Exception management and new instrument set-up should also be offered.
The utility must also present low-risk to firms, ensuring that they on-board to an existing service which will be available for many years to come.
Such utilities are in operation today. Hedge funds businesses have the immediate opportunity to capitalise on this dynamic and on the ground work that has already been carried out to benefit from:
- Improved data quality
- Lower data management costs
- Avoiding the constant software and hardware upgrade and maintenance cycle
For once, it is possible to gain immediately from the experiences of others by taking advantage of what is common across the financial community, whilst meeting the very individual needs of your own firm.