Why staying compliant and generating returns are not mutually exclusive for funds
Jon Hallaham, GoldenSource, advocates a fully hosted data management operation
As regulatory pressures mount, Jon Hallam of GoldenSource explains why removing the burden of data management from the shoulders of fund managers can help deliver absolute returns for investors.
From investors wanting more bang for their buck to increasing regulatory reporting requirements, it’s fair to say that asset managers have had a fair bit to mull over in recent times. If this wasn’t enough, these funds, particularly the small/medium cap firms, have had to manage higher IT management expenses. These include costs for application development, headcount and IT maintenance.
This is supported by recent research from EY, which showed that hedge funds have already anticipated spending more than 12% on IT over the next two to five years.
The trouble is that compliance officers and software developers don’t come cheap and, with squeezed margins, companies are hardly in a position to shell out on more personnel. All this has left compliance officers and those responsible for IT within these firms caught between a rock and a hard place. How do they ensure they continue to manage IT efficiently while staying compliant and providing value to investors?
To answer this question, funds have been exploring ways to remove the headache of managing certain aspects of their IT – including outsourcing the management of their data. With such a vast volume of information coming from multiple different sources, it is easy to see why a fund manager would look for third party support in this area.
Examples of the types of data can be wide-ranging and can affect different things, from derivatives product types to event-driven actions such as an IPO. Often, these firms could be trying to source the same data from different parts of the business without realising it.
Since data is likely to be a big external expense to an asset manager, having data in one place and being able to use it across the business can deliver immediate, bottom-line impact. In addition, there also needs to be some sort of expertise in place to manage relationships between data across disparate sources.
Ultimately, it’s the critical relationships between data sets that prepare firms to answer the key questions that currently matter the most to the business. Did the price spike due to M&A speculation, or did it fall because a rating dropped for an issuer? What is the effect of this drop to the bottom-line?
Turning to a fully hosted data management operation is one way they can quickly respond to these data questions and remove the burden from IT and compliance. Compliance officers can be sure critical data is complete, clean and consistent for when a regulator comes calling.
This is particularly important as the number of data fields investment firms have to report on under MiFID II has shot up from 23 to 81.
As for those responsible for IT, they will be able to save on margins by not having to carry out constant application upgrades.
The upshot of this third party support is that hedge funds will be in a stronger position to quickly seize new business opportunities and meet regulatory mandates. With investment managers under significant strain to show their worth to investors, now may be the right time to remove this long-standing data challenge in order to free up capacity to do what they do best – managing their portfolios and delivering absolute returns.
