Why Data Quality Has Become a Critical Issue for Fund Managers
For many years fund data quality was an IT issue; one for system teams to deal with or one which was addressed only when something broke. This is simply no longer the case.
Industry-wide, fund data quality is now a strategic issue: impacting investment decision-making, client trust and regulatory confidence, not to mention a firm’s ability to scale.
From Operational Detail to Strategic Risk
Whilst all investment managers are reliant on data across the whole investment life cycle, the margin for error is smaller given increased complexity. This data is not generated in one place nor consumed by a single function; instead it’s copied, manipulated, enriched, consolidated and reconciled across many disparate systems-without clear ownership in many cases. At smaller scale this can be contained. At scale it can and will mount. This is the juncture at which fund data management moves from an operational problem to a strategic one and we can all start talking about the ‘reliability’ of fund data rather than merely whether ‘fund data exists’.
Investment Data Quality Directly Shapes Decision-Making
At investment level investment data quality dictates decision making. If pricing is incorrect, or the update time slow, or the asset definitions unclear then performance and risk numbers can become distorted. Especially in volatile market conditions portfolio managers need reliable and timely data in order to make their investment decisions, and as confidence in data diminishes, decisions are made with far less conviction, with a higher degree of second guessing involved, and less risk is managed. Data quality becomes more of an input to investment governance than a reporting task.
Fund Reporting Accuracy Is Under Growing Scrutiny
The consequences of poor data quality is most evident within the reporting space. Investors, auditors and regulators expect fund reporting to be accurate not simply in terms of the figures but also the lineage and consistency of the data across each report. Manual workarounds, late reconciliations and last minute amendments help with the immediate reporting tasks but add instability in the longer run and contribute to operational reliance on individuals and therefore fragility within a fund manager. Fund managers are now being measured not by what they report but how accurately and consistently they report.
Data Challenges in Asset Management Are Compounding
There is one painful truth for fund managers: that data challenges in asset management do not exist in a vacuum. Inconsistencies compound along with business scale. A reconciliation issue develops into a governance problem. A different definition of an asset class creates a reporting issue. Each new fund, strategy and domicile creates more points of friction to an already straining operating model. The more effort put into managing these separately, the worse they tend to get in the absence of a more integrated and coordinated strategy toward data. This has led many firms to reassess the integrity of their foundations as well as the tools to address the issues.
What This Means for Fund Administrators
As fund structures and reporting requirements evolve and become increasingly complex, administrators become the locus at which many of the anomalies and risks of fund data are most keenly felt and, to managers who invest in their data foundations – ownership, integrated systems and controls – will be best positioned to both scale alongside managers and be less focused on resolving problems with past data and more on the robust handling of future fund data.