Upcoming regulations for European pension funds will draw them into the “big data” challenge currently facing asset managers. But, says BNP Paribas Securities Services, these challenges can be converted into an opportunity.
The big data concept, which refers to the amount of detailed data required under Dodd Frank, EMIR and Basel III, will have implications for asset managers and pension funds as the industry looks towards enhanced transparency and increased protection for end investors.
Risk monitoring has become increasingly more important for these institutional investors. However an IBM E-book on Understanding Big Data 2012 finds that 80% of the world’s data is unstructured, or semi-structured at best.
Furthermore, the majority of firms (76%) have seen a significant increase in the priority of investment data management, according to research from AITE Group.
Given the increasing amount of regulatory scrutiny, the data challenges for asset managers are three-fold: firstly, managing large amounts of data is becoming hard work for asset managers who are looking to keep their costs down while complying with the regulations. Secondly, the industry is still securing the confidence to grow their investment database following Lehman Brothers and the negative publicity that followed.
A third challenge for asset managers is to carefully manage distributor data. This is where custodians are rising to the challenges. Andrew Butler, head of product, UK asset and fund services, says: “We’re investing in data on the custody side but also for some of the ancillary services such as securities lending and FX. There are direct costs with licensing but there are benefits. Asset managers have a limited ability to manage and access the large amount of data required and therefore there are huge opportunities.”
Asset managers can outsource their data holdings to custodians and manipulate it accordingly.
Services provider data management currently involves working with the client in the design phase in order to provide large amounts of data in a real time electronic manner. “It is about exceptions, trends and seeing opportunities in the trends,” says Butler.
“It is also about creating transparency and accessing and understanding a broader view of data.”
For example, BNP Paribas’ DNA for distribution tool includes a transfer agency component which provides traditional drill down so that the fund manager can understand who is distributing its funds, which funds and sub-funds are successful and which regions are performing the best. If a distributor or fund manager has a roadshow, using big data they can plot the success of an event afterwards.
Another tool, which focuses on data visualization and data validation, offers portfolio detail from stored data. “Every day we are looking at about 10 million records of data to show asset managers thereby helping them address the problem with the size of the data,” says Butler. “This tool enables the asset manager to set tolerance levels from the previous day.”
The data visualization tool can also be extended to transactions where the tolerance will be set by the asset manager. Both tools are delivered via I-pads.
For pension funds, getting data on their asset managers has also changed in the level of priority at board meetings. A market survey on the UK and French market in early 2009 suggests that before Lehman, asset management performance track records were the key areas of focus for pension funds when choosing fund managers.
However, following these scandals, transparency followed by performance became the criteria in how they would choose their asset managers.
For pension funds, data records used to mean thousands of pages but recent trends in UK board meetings of pension funds show that from 2011 to 2013, the demand for tablets and I-pads has increased 50 times. The research, from Edis-Bates Associates and the Institute of Chartered Secretaries & Administrators, also found that 40% of 150 London-listed companies were paper free within two years.
A further complexity in data delivery is the ageing technology – 62% of systems were installed before 2006, but 84% of executives find client reporting technology to be the riskiest to replace according to a CEB Towergroup Survey.
The same survey also found that only 30% of the firms invest in mobile applications and client-facing portals, revealing a mismatch between institutional investors’ wants and needs and what the industry provides.
However, given that there are currently 15 types of regulation that pension funds need to comply with from 2015, these innovations bring a new way to track performance and analyze risk.
The big data provision trend was first observed in the paperless superannuation funds industry in Australia. In Europe, this can be transposed into the complexities of drilling down into a fund manager’s performance, and transparency and risk monitoring can apply to a Luxembourg domiciled fund, for example, delivered real time by BNP Paribas.
Many local authorities are showing an increased interest in this, says Diogo Malato Moura, head of product, risk and performance solutions, from BNP Paribas Securities Services.
In terms of securities lending, big data also sees the custodian drilling down to provide information on fee splits.
Big data delivery is a value-added service for BNP Paribas and can be included in the provision of custody and fund administration or as a separate risk analysis tool. “This is a trend we’re seeing – with a pension fund board meeting the data is there on an I-pad for them to look at,” says Butler. “While it is a direct costs that is not immaterial it adds value to existing customers and attracts new ones.”
“It helps local authority pension schemes to monitor and standardize information regularly and find out where their exposures are real time,” adds Moura.
BNP Paribas Sees Big Data Challenge as Next Area of Opportunity
Upcoming regulations for European pension funds will draw them into the “big data” challenge currently facing asset managers. But, says BNP Paribas Securities Services, these challenges can be converted into an opportunity.