The Innovation Transformation
By Paul Fleming, State Street Corporation
Published: 12 October 2018
We live in an era where we have instant access to information – on our phones, in our inboxes, through both traditional and social media, and so many more outlets. But for alternative asset managers, putting it to use can feel like an arduous task. To make sense of the data overload, it’s time we transform how we look at and consume this information.
Up until now, temporary solutions to manage multiple platforms and large data sets gave a quick fix to a complicated problem. The challenge is likely to grow even more complex as new regulatory mandates around data generation and reporting are introduced. Finding a better way to gather and manage data – that also best fits the way you work – adds another layer of complexity. To achieve scale, improve performance and access industry-leading insights, smarter systems that aggregate and manage information are essential. A holistic view can help enhance performance, improve risk management and transform data into valuable insights.
The competitive landscape for the financial services industry is shifting as well. Large providers are up against small fin-tech shops who move much faster, have access to tremendous amounts of capital and easily attract talent. With investors hungry for information and a better way to consume and understand it, we’re seeing a financial services market that’s ripe for change.
Demanding more for your data
Asset owners and asset managers are fundamentally changing how they compete and operate. Investment managers want to spend their time on getting the most value out of their data, not on gathering and preparing it. To gain an edge, they’ve increasingly turned to specialist firms for software to manage and analyze data. More recently, offerings have expanded to hosting services that offload the in-house burden of maintaining computing horsepower.
Our research underscores this trend. In a survey we conducted this year with 86 global institutional and alternative investors1, 54 percent said they predominately rely on external providers for their data analytics. That’s an increase of five percent over nearly half (49 percent) of the institutions that we surveyed five-years prior. What’s more, our research shows the figure is expected to rise even further over the next three years.
Client demands and new investment types – from passive portfolios to quantitative factor strategies and ESG criteria – are stretching managers in different directions. In short, the industry is facing increasing demands for information that is more complex and rapidly changing, and needs to be summoned up in a shorter time frame. Every basis point is precious, giving relevant and timely investment information greater value.
To compete in today’s landscape, our 2017 research2 summed up the three keys to success as data integration, data intelligence and data integrity. An effective infrastructure applies these three keys to success. Data-as-a-service platforms provide a scalable, cloud-based solution that allow users to more completely measure and evaluate risk, address regulatory concerns and make more informed, real-time trading decisions. By integrating forward-looking risk analysis, streamlined workflows, access to information and transparency, and improved accuracy and reliability, managers have end-to-end support for their business processes.
Gearing up for an innovation transformation
Machine learning algorithms and natural language processing are another set of tools changing the way we consume data. But in an industry well known for policies and procedures, the inherent risk and uncertainty of new technology and innovation can create an adoption challenge.
Steve Marshall, who heads the development of a mobile-first platform at State Street which helps users understand the connection between news and their portfolios, can relate to the struggle. He points to Clay Christiansen’s best seller, “The Innovators Dilemma,” to help explain why transformational or “disruptive” innovation is difficult inside a mature enterprise. It doesn’t mean change can’t happen. It just means we have to think about the problem differently.
When Steve thinks about the information overload confronting his clients, he explained there are three thoughts going through his head: What problems do clients see every day that haven’t been addressed? What type of solution might solve those problems? And how can his product development team build something clients want, that’s technically feasible to build and operate, and viable from a business perspective?
Focusing on new milestones
My colleague’s thinking on innovation transformation can easily be applied toward a broader vision of supporting institutional investors as they grow their businesses. Data is just one piece of the puzzle. Our clients’ needs are constantly evolving and they’re always on the hunt for new ideas and solutions that will make their business hum even more efficiently.
In talking to our clients, what we hear time and again is that they want a holistic view of their investment portfolios and operations throughout the trade lifecycle. From cash management and regulatory reporting to data and risk analytics, an integrated servicing platform offers an efficient and seamless front-to-back way for clients to see their full investment process. It’s information that helps them to understand the ins and outs of their business and supports them in their decision making. By creating new ways that help our clients to get even more value out of an interoperable platform – without having to create the infrastructure themselves – we help support our clients’ ambitions.
1 - State Street DataGX 2018 Survey by PollRight
2 - 2017 State Street Finance Reimagined study. Survey done in conjunction with Roubini ThoughtLab of 2,000 investors and 500 wealth managers worldwide.
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