Structure key to realise big data benefits

Firms that act as sources of big data for asset managers must do more to provide their clients with structured information.

Big data must be provided to asset managers in a way that is structured, otherwise it risks being rendered meaningless as industry interest in the concept continues to grow.

Global custodians and other asset servicers see enormous commercial opportunities with harnessing client data. The sheer volume of data possessed by global custodians can be homogenized and consolidated, and distributed back to clients.  This data can then be used by clients to make informed business or strategic decisions.

However, the data must be presented in a way that can be easily digested by end clients. “Simply having the data on its own is not helpful. Fund managers have significant volumes of work and they do not want to spend time digesting data that does not add value. Any big data must be business relevant insofar as it helps move the business forward or solves a problem. I do not believe global custodians or technology vendors can provide this in isolation. One area big data could assist is with industry benchmarking, and helping me identify how my business is doing relative to my peers,” said Sonia Maloney, chief operating officer at Norrep Capital Management, an investment manager in Calgary, speaking at the Global Custody Forum (GCF) 2015 in London.

Big data can have huge regulatory benefits as well. The financial crisis has prompted a number of regulatory reporting initiatives for fund managers including Dodd-Frank’s Form PF (Private Fund), the Alternative Investment Fund Managers Directive’s (AIFMD) Annex IV, derivative reporting under the European Market Infrastructure Regulation (EMIR), position level reporting to insurance clients under Solvency II and transparency and transaction obligations under the Markets in Financial Instruments Directive II (MiFID II).

The penalties for non-compliance, either deliberate or inadvertent, are varied but the reputational risks can be severe. As such, harnessing big data can be a means by which firms can improve their adherence to regulatory compliance.

However, there have been a number of challenges towards big data. Privacy law in some countries could cause issues for providers of big data, particularly given how quickly the concept is evolving. Furthermore, a number of service providers are constrained by legacy technology systems making the collection and collation, as well as supply of big data operationally challenging.

Others point out some organizations’ senior managers are bound by inherent conservatism and reluctant to embrace radical change. A survey at GCF found that around a quarter of attendees said both silos within their organizations and a lack of understanding by their managers had stunted the embrace of big data. A smaller percentage said clients were unwilling to purchase big data.

However, there are concerns. 40% of survey respondents at GCF expressed alarm at the risk of liability as a result of big data. This could be, for example, by supplying clients with erroneous big data, which precipitated trading losses. 17% said they were concerned client data could fall into the wrong hands, a justifiable concern given the growing threat from cyber-criminals.