By Stephanie Farrell, Head of Integrated Trading Solutions, Americas, Northern Trust Capital Markets.
It’s no secret that data management presents many hurdles for institutional investors. It can be difficult and time-consuming for asset managers to sift through the high volume of data needed to make decisions. This can create barriers to a well-functioning operating model, particularly when organizations need to focus their limited resources on consolidating or enhancing data rather than on higher-value analytical activities.
To bridge the gap, a recent Northern Trust survey of 300 global investment managers found that 52% of respondents plan to invest in analytics, while 49% plan to leverage data tools to improve decision support and analytics infrastructure. The survey further found that asset managers are increasingly exploring outsourcing to address data challenges such as reconciliation, information sourcing and analytics.[i] Outsourcing certain functions such as trading can provide access to advanced data analytics to help strengthen trading performance and improve transparency and oversight.
Today, it is essential for asset managers to have access to comparable data across multiple sources when managing accounts, deals and trades. As transaction volumes grow and the asset classes in which they invest become more complex, firms may struggle to access and manage the accurate data they need to make well-informed decisions, particularly those that rely on spreadsheets for data management. Outsourcing front office activities is one way to overcome this challenge. Outsourced providers have access to the systems and technology that can help asset managers gain the edge they need.
Data paints a picture, and outsourcing providers can offer advanced analytics that asset managers may not otherwise be able to access themselves. From pre-trade data science capabilities like behavioral analytics to post-trade transaction cost analysis (TCA), data analysis is changing the trading game and asset managers should keep up in order to continue to deliver alpha for their clients.
Outsourcers offer key benefits that can enhance the quality of data analysis. For example, outsourced providers hold a large amount of trade data and can examine it in numerous ways. Plus, the information and insights provided by the data analysis offer an opportunity for a positive feedback loop between the provider and asset manager, increasing the quality of the outsourced function over time. For the provider, the goal of data analysis such as TCA is a constant evolution and re-evaluation of execution strategies and vehicles to ensure lower costs for clients and the ability to adapt to changing market dynamics. For the manager, improved data analysis can help them meet compliance requirements. Finally, outsourced traders can provide feedback on price performance before, during and after a trade is completed to constantly evaluate trading effectiveness.
The rapid emergence of new technology and broad digitization creates an opportunity for unprecedented levels of transparency and sophistication in how data is processed and analyzed. In recent years, for example, TCA has evolved from a standard, out-of-the-box exercise in cost effectiveness to a more sophisticated assessment of trading performance. Leaps in technology allow asset managers to access advanced trade analyses that were traditionally only performed by the largest firms. Digitization is changing our industry at warp speed, and data is more accessible than ever before. Automation can help drive accuracy and efficiency across many functions – including valuations, trading and reporting – while reducing execution costs. Automation can also enable better data-informed decision-making, helping firms drive their data analytics, improve investor relations via greater transparency, and meet their regulatory and tax reporting obligations.
As data analysis increasingly becomes an important component of the trading oversight model, asset managers should be making the most of the insights offered by their data to stay ahead of the curve.
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