Large custodian Mellon Financial Corp. has previously dipped its toe in the water of reference data manage-ment through its acquisition of Eagle Investment Systems in 2001. Now it is getting ready to dive in with a packaged reference data management outsourcing solution targeted at investment management firms.
Brian Buzzelli, IMS product management, reference data, says, “The Eagle platform will be at the heart of the offering, wrapped by Mellon services and supported by our infrastructure. The Mellon Investment Manager Solutions (IMS) division has been offering component-based, or total, outsourcing for some time, and so it is a natural extension to package the IMS reference data component.”
Reference data services have been offered as part of a bundled service including investment accounting, trade communication, and performance-analytics from Mellon IMS to its existing outsourcing clients. These are primarily insurance companies in the U.S. and some other regions. Now, after a couple of years in consideration, the capability is being packaged into a standalone reference data management solution.
The plans will bring Mellon into the fast-growing reference data outsourcing sector, where custodians such as Bank of New York (which acquired software company Netik last year – Reference Data Review, July 2004), Morgan Stanley and State Street Bank are already active to varying degrees. Of course, software vendors such as SunGard and Accenture/Asset Control are also targeting this business.
Says Buzzelli, “With $4.5 trillion under management, administration or custody, we have the expertise and technological capability to leverage this capability to provide outsourcing services.” Adds Amy Harkins, senior vice president and head of global asset servicing at Mellon, “We already have a depth of knowledge about the assets and processes of investment management clients, which other firms that just scrub data cannot have.”
Mellon plans to come to market by the end of the second quarter of 2006 and is already in discussions with two to three potential pilot clients. Its product offering will be comprised of four components at different pricing levels. The first will offer basic reference data used for identifying securities in trade processing, and covering global equities and fixed income securities. The second is for use by risk management, where data such as ratings and classifications will be added to the core reference data content. The module will be adapted to integrate into downstream applications.
The third will add analytics, with derived data such as convexities. A major part of this strategy is the integration of analytics from the newly renamed Mellon Analytical Solutions, the former Russell/Mellon (which the firm now fully owns following the purchase of the remaining 50% last month). With full ownership comes greater freedom to pursue developments with the division, says Buzzelli. “We think that the addition of such analytics will give us a key competitive advantage,” says Buzzelli.
Harkins adds, “There are a lot of data assets within Mellon that we can leverage. We’re working steadily through analytics as it is a big nut to crack, but will look to other assets in the future.”
The fourth component will be additional customised data services. Says Buzzelli, “Customers want a partner that they can collaborate with to meet their business objectives and we recognise that we will need to provide a certain level of customisation. We will of course look for a standard master, for example on basic issuer data, but some information is looked at by clients in different ways. We already provide customised data management services in other areas for clients, and the Eagle platform can handle such requests.”
The platform will source data from multiple vendors, which will be scrubbed and verified and offered as the ‘Mellon Gold’ securities master. Clients can mix in their proprietary data. Reference data within Mellon is handled by Harkins’ team. Some vendors are already integrated and others are currently under negotiation. Mellon may in the future look at additional components such as corporate actions, for which they already have an internal module that could be leveraged, and a securities universe offering.
To support the new data management outsourcing initiative, a support data group has been created by taking people with over five years experience in data from other internal departments such as the global pricing group, global corporate actions, incomes team and others. Says Harkins, “The team know data inside out and work with vendors and the Eagle platform. We plan to grow this team as we work with additional data vendors.”
Work is also underway to expand the range of ‘tools and rules’, such as the dashboard and data extractors. The extractors, branded IMS DataBridge, refers to the “standard data access models that will be used by clients to get at our data,” says Buzzelli. “The first version will be fairly simple but will develop from there.”
There are three key groups of clients Mellon will be targeting. The first involves enabling existing Eagle clients. “We will provide the IMS DataBridge so clients can immediately hook into our managed data services once they sign up,” says Buzzelli. The second will be existing Mellon outsourcing clients, and the third will be to the general market.
Within the institutions, says Buzzelli, our primary target is the reference data manager. “We believe they are being pressed to maintain costs but improve capabilities. This means that the cost structure has to change and one way they can do this is to look at a marginal cost operator such as ourselves.”
Also a key target is the investment manager within the front office. Says Buzzelli, “An individual might say I need that data to be married with my portfolio, either based on their technical or fundamental investment approach, or a third approach of looking at ancillary benefits such as tax savings on a portfolio composition. All of these approaches have different reference data requirements.”
Another target, although less usual, says Buzzelli, are the information architects or technology division.