GC Friday Interview: Steve Vanourny, Head of Analytics, State Street Global Exchange

Steve Vanourny started life in State Street as global head of strategy in 2010, at a time when transparency-driven regulatory initiatives started to prompt many conversations about the next opportunity in the brave new world of post-trade services. Following a major strategic initiative, which led to the creation of State Street Global Exchange earlier this year, Vanourny jumped in to head up the analytics business, which is essentially looking across risk and trading analytics and services.
By Janet Du Chenne(59204)
Steve Vanourny started life in State Street as global head of strategy in 2010, at a time when transparency-driven regulatory initiatives started to prompt many conversations about the next opportunity in the brave new world of post-trade services. Following a major strategic initiative, which led to the creation of State Street Global Exchange earlier this year, Vanourny jumped in to head up the analytics business, which is essentially looking across risk and trading analytics and services. Vanourny talks to Global Custodian about finding new sources of value in data and analytics.

What is the big idea behind data analytics?

SV: Our view is that a lot of the things that are going on in the industry push us towards a convergence of the front, middle and back office.

The clients don’t want there to be front-office providers, middle-office providers and back-office providers; they want an integrated solution that leverages all the data and technology that exists in the back and middle office being brought to the front office by real value-added solutions. Ideally they would like it from one player. They would like us to maximize the potential we already have both in the technology and the data. So that was really the impetus for forming the new business, which we call Global Exchange. Transparency is one big trend driving our decision : regulators want more transparency, investors want more transparency, and asset owners and trustees want more transparency. That’s putting more pressure on systems and data to provide that transparency.

A second key trend is around the proliferation and complexity of data. The data is literally growing exponentially and is also fragmented across multiple places and multiple holders of the data, whether it’s custodians, administrators, market data providers, etc., and then asset managers and owners in particular, who are fragmented by jurisdiction, etc.

Then the third trend we are seeing is the electronification of asset classes. It’s obviously happened in some asset classes like equities, but it’s continued to happen in the fixed income, derivatives and mandatory, centrally cleared environments. Everything is becoming more technology and data intensive. So we think we need to provide significant value-added services to meet those needs.

At the end of the day, this is about being responsive to our clients’ needs. This is a big strategic initiative for us. We are trying to go further up the value chain and provide a different set of value-add products and services for our clients that we haven’t always provided in the past.

How have your asset owner clients responded to the launch of the new business?

SV: Every client conversation is “Why didn’t you do this sooner? Why haven’t you done more with the assets that you have?” They say: “It has always occurred to me that you guys sit on all this valuable data and all these valuable assets, and I’ve always wondered why you haven’t done more with it to create value for your clients.” We provide custody and administration services on over $25 trillion of assets. We have access to clients’ positions, their holdings and their transactions. They are bringing in tons of market data every day, and they recognized that a lot of solutions they are looking for in the new world will rely on all that data. They will bring it all together, they can build connectivity to third-party sources where they don’t have the data, and they see us as a natural player in that space.

Having said all that, our first and foremost concern is the security of client data. Our clients’ trust and confidence is our number one asset, but they are also pushing us to do more with data, whether it’s derived data, aggregated data or client permissioned data. We think we can create value for clients across all those categories.

But importantly, in addition to data, connectivity with other providers is a big theme with clients. For example, we’re a risk provider for over $1.5 trillion of assets with multi-asset class risk capabilities for insurance companies, asset managers etc. When we deliver those risk services a lot of the data is assets held at State Street but a lot of it is not. It’s getting that data to the right place, at the right time and at the right format that creates the value. Clients and other providers are starting to realize that now. They’re no longer looking for just a software solution or slick analytics. It’s a comprehensive solution that can help them solve problems across all the trends I talked about before—transparency, data proliferation and complexity, and the challenges of electronification. The analytics are great, but you have to help me with that other 70%, which is the data management to get the data aggregated in the right format at the right place and the right time so that I can do those analytics.

And why didn’t you do this sooner?

SV: What took us so long is just figuring out the right way to approach this. Frankly, sometimes it’s just hearing it enough from your clients. We are a very client centric company and most of the innovations that have happened in time have generally come from client requests. So to some degree I think it was us gaining the confidence that we had heard it enough from our clients that we sensed a pattern.

We also did some of our own research and it confirmed what we were hearing from clients. We spoke to over 400 institutional investors, and 90% said this was a top management priority for them; nearly 40% said this is the single most important strategic management priority item for them. Think about that: these are asset management firms whose core mission in life is running money and distributing it, not managing data and providing analytics. Yet for almost 40% of respondents the single most important thing they’re thinking of right now is not how they can change their portfolio management processes or distribution approaches, but it’s data and analytics and how they manage those.

The reason is that there’s such a huge gap between future expectations and current capabilities. 67% of the people we talked to say data and analytics will be a huge source of competitive advantage for them. But only 29% of those feel that that they have the capabilities today. So that’s why I think it’s such an important priority. They look out strategically and say, “This is hugely important, we have to get this right,” and then they say, “I don’t know how we get there.”

What is next for data analytics?

SV: There are three themes or areas we are investing in. One is all around multi-asset class solutions that include risk, performance, compliance, transparency and reporting, built off much more seamless multi-asset class data and the data management analytics solutions that sit on top of it.

The second area is more around using data for insight and translating data into insightful solutions. So we are looking right now at how we can take a better use of contributed data models. For example, we have a product called Fund Insights, which is essentially a contributed data model where mutual fund owners and managers will contribute valuations. Then you might get 15 or 20 contributions, and then we play them back so that they see how their peers rank against them. It’s a lot of peer-contributed data where the aggregator has a lot more value than just the data points themselves. Our Private Equity Index is another great example of where we get differentiated value from the sum of the parts. So it’s about looking at areas where we can develop new indices, new benchmarks, new data sets. For example, that could enable the creation of investable products that may invest against a new index in the alternatives area. If we can develop that for a hedge fund or private equity fund, could we translate that into an investable product with good liquidity and attractive fee structures?

The third big area is in the trading and clearing space. Derivatives are a hugely important asset class for us so we’re making significant investments in our FCM and related capabilities. We see central clearing and the evolution of the derivatives market as an important trend that we need to be a part of and that we are a natural player for.

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