The data management community could potentially learn a lot about standardisation from the world of performance measurement, suggested Corné Reiners, head of both FSC performance measurement and data management at Robeco Asset Management, to delegates to TSAM in London this week. A lot of cooperation has been achieved within the area of performance measurement between asset management firms and this led to the development of Global Investment Performance Standards (GIPS), which have achieved great traction in the market, he contended.
Reiners is keen for the market to take the initiative ahead of regulatory compulsion and asked firms to consider working more closely on the non-competitive areas of data management in order to coordinate this action. In particular, he spoke about the challenges around the pricing and valuations process due to increasing complexity of data and the need for an industry standard “basic valuations policy structure” for this space.
“We need to be more in control of these processes and in less of a reactive mode to these challenges and the onset of regulation,” he explained. “Specific operational procedures around pricing are specific to asset management firms but a robust valuations policy could be the same across these firms.”
Reiners indicated that the financial crisis was at the root of these troubles around determining fair value pricing due to illiquid markets and high levels of volatility. Firms now therefore need to put in place policies to determine what action to take when certain pricing related events occur, such as the action to take if there is a dramatic difference between two vendor prices. “We need clear repeatable policies that demonstrate action that must be taken to achieve the correct level of consistency when dealing with pricing data,” he said.
This would keep the regulators and auditors happy, added Reiners, and mean the industry is in more of a proactive rather than reactive mode. Firms could also build on these policies to determine their own hierarchy of vendor price feeds for instruments and establish rules around the governance of data quality. Important factors to be included in this equation are the evaluation of third party feeds and the segregation of responsibilities, according to Reiners.
Auditors’ two main responsibilities are to check that a firm is doing what it promised to do and that it is doing the right things, he continued. A valuations policy could therefore help firms to prove both of these tasks are being done: “The adoption of a globally recognised standard makes a firm’s position stronger in this respect.”
Reiners referred to the work of a European Fund and Asset Management Association (EFAMA) working group on the subject but stressed that more needs to be done to ensure that best practices are adopted once they have been established.
He concluded: “Asset managers, regulators, auditors and data vendors all need to work together to come up with these standards and make sure they are generally accepted. There is only one step on my roadmap and that is: who is willing to join me?”