Back in July, I touched upon some of the findings of our valuations benchmarking efforts in the North American markets, noting that many buy side firms in these markets want vendor performance to improve to meet their current and future needs. Well, the full report is finally available to download (see here) and it seems that certain vendors are perceived to be doing a much better job than others at the moment, even if there is room for improvement across the board.
I’ll give you a few headline items to inspire you to download the report in full…
We spoke to 50 individual firms; well over half of which were asset managers and the rest were securities services providers. These firms indicated that the biggest challenge for them currently in managing valuations is a lack of data underlying these pricing calculations, especially for the thinly traded end of the securities spectrum. Respondents also said they’re more likely to use third party valuations than ever before and the majority are aiming to move away from relying on counterparty provided prices.
These two trends are likely a result of the increased scrutiny of data underlying valuations from the regulatory and client communities, and it is only likely to increase over time, given the emphasis being placed on transparency within regulatory developments such as the Alternative Investment Fund Managers Directive (AIFMD) and Dodd Frank (on the former, check out my AIFMD in focus piece here). Backing up your decision making process and providing a strong data audit trail is of paramount importance to clients, risk managers and compliance teams – and this is something that respondents to the benchmarking survey indicated to be the case. The top scoring driver for investment in valuations was risk measurement and management at 85%, closely followed by regulation at 76%.
The focus for valuations teams is seemingly in further expanding their asset class coverage and their sources of data (likely for validation purposes), as well as increasing automation of the process overall (likely for cost containment purposes). The report also signals an increase in the frequency of valuations, a trend that has been building for some time and one that was also a key finding of our European benchmarking study last year.
On the individual vendor front, Bloomberg performed particularly well, often bagging the top slot in terms of performance within individual categories such as coverage and innovation, as well as overall satisfaction. Markit also performed well in the individual categories, beating Bloomberg on accuracy and individual asset class coverage. In terms of overall satisfaction with vendors, however, Thomson Reuters came second to its fellow data giant rival.
Looking at the quality of service being provided by the vendor community overall, timeliness was a category in which most performed well. However, data transparency and innovation were categories in which the vendors performed worst overall, along with customer service and support. Going that extra mile could make all the difference.
The good news for the vendor community is that the majority of respondents to the survey indicated that their budgets would be increasing over the next two to three years by around 25%. Opportunities are out there, in other words, but vendors will have to up their performance if they hope to capitalise on them.
Check out the full report here.