The rapid take-up of OTC derivatives and associated business risk, is causing buy-side firms to re-evaluate strategies, even those with well established data practices, according to an international survey commissioned by GoldenSource Corporation.
The research, carried out by A-Team Group, studied trends among buy-side firms in managing instrument data and found that almost 80% of asset managers are reviewing their data management strategies due to complex products.
When asked their motivation for re-evaluating data management strategies, 63% of the respondents cited growth/scalability as a top priority. This ties in with firms’ desire to continue investing in complex products while ensuring they’re supported by solid data management practices. Front-to-back office consistency in data handling was ranked as a top priority by 54% of respondents, and better management of perceived risk was top priority for 46%.
Other key findings of the report include:
– The widespread use of reference data systems – 96% of buy-side firms have connected their accounting systems to reference data systems, or plan to, in order to get a better picture of exposure;
– Need for improved operational efficiency and risk management – almost three-quarters of respondents cited operational efficiency and 68% listed business risk as key factors for motivating buy-side firms to centralise data processes;
– The growth in popularity of third-party data management – with 74% of respondents saying they use or plan to use third-party data management; – Excel is still a fall-back for managing derivatives – 64% of respondents said their firms still use Excel to manage OTC derivatives on an ad hoc basis, and 44% use it systematically for some applications;
“Before it was ‘know your client,’ now it’s ‘know your data’,” says Neil Edelstein, vice president of product solutions, GoldenSource. “This research has highlighted three main drivers compelling buy-side firms to re-evaluate their data management strategies: the continued growth in OTC derivatives and the data challenges that brings; the need for more proactive risk management; and a desire for centralised data management to ensure consistency.”
“The sheer volume of data associated with OTC derivatives and the fact that much of it is stored in stand-alone Excel spreadsheets with no centralised data model further compounds the risk factor – and the need for firms to rethink their strategies,” adds Edelstein.
To produce the report A-Team Group held structured discussion with a global sample of senior individuals involved in reference data management at buy-side firms. Geographically, the survey sampled respondents from around the globe, in particular from the U.S., U.K. and mainland Europe (with an emphasis on The Netherlands and Belgium) with the majority of respondents selected from the top 100 asset management firms in the designated regions.