Why do investment managers struggle with data acquisition?

By Puja Sharma

Investment managers can’t get their hands on the right data, study shows

Extracting accurate data is one of the biggest reconciliation challenges buy-side investment managers face just over a year out from T+1 for US equities, according to new research from Gresham Technologies (Gresham) in association with WBR Insights.

In a survey of 200 heads of investment operations across global asset managers, fund administrators, and hedge funds, 55% cited extracting the right data points accurately and efficiently as one of the three biggest reconciliation challenges. A staggering 90% confirmed that their number of external data feeds increased in the last 12 months. With so much information to sift through, it is hardly surprising the other bugbear that was top of the list for investment managers (55%) was identifying the root cause of trade failures. Building, onboarding, and maximising controls was the third biggest challenge outlined by respondents (52%).

Accurate data is becoming increasingly important when it comes to trade reconciliation, as financial institutions continue on their journey to one-day trade settlements. Inaccurate data, not delivered promptly, is a key driver of trade breaks, mismatched prices, and ultimately, settlement failures. This is sure to come under increased scrutiny throughout the year as the May 2024 deadline looms over market participants to remove one extra day from the US securities settlement cycle.

“Increased volumes, velocity, and complexity are causing a complicated data deluge for the investment management community.,” said Neil Vernon, Chief Technology Officer, Gresham “For asset managers and hedge funds to address this, they must be able to identify the root cause of fails and invest strategically in their operations. This all comes back to the availability and quality of data, and as we have found in this process – firms are flooded with too much data to effectively and swiftly normalise, validate and utilise across operations. It shines a spotlight on the need for collaboration with strategic partners when identifying how the reconciliations process can be optimised.”

The survey revealed that buy-side investment operations leaders are paying more attention to controlling the cost of operations as they face resource constraints and an increasingly challenging market environment. Digital transformation, automating and integrating processes, and optimising how internal talent spends their time are becoming top priorities.

As a result, more operations leaders are considering outsourcing to help fill the gaps and add efficiencies. Data control and quality continue to challenge buy-side firms as volumes, complexity, and disparity grow along with more sophisticated and global investment strategies driving the need to take in more unique data feeds among the majority of firms (90%). Nearly half of the respondents (47%) gave their data quality a poor or fair rating, and two-thirds (67%) said they collect and normalise their data in-house

While most firms automate their reconciliation processes and workflows, it appears that their reconciliation performance still needs improvement. Nearly two-thirds (65%) of respondents experienced an increase in their daily exceptions over the last year and rated their reconciliation accuracy and scale significantly lower than efficiency.

Their main challenges were determining the root cause of failures and extracting the right data points accurately. It is no wonder that more than half (59%) of operations leaders who chose outsourcing to augment their operations are motivated by the need to improve operations performance and processes more than to reduce costs. And while most firms use a variety of software tools to scale, very few plan to invest in AI/ ML tools in the foreseeable future but recognise their potential to enhance efficiency down the road. Going forward, investment operations leaders are placing digitalisation, automation, and maximising data firmly at the top of their priority lists.

Key insights:

• Around 55% cited extracting the right data points accurately and efficiently as one of the three biggest reconciliation challenges
• A staggering 90% confirmed that their number of external data feeds increased in the last 12 months
• And while most firms use a variety of software tools to scale, very few plan to invest in AI/ ML tools in the foreseeable future
• Inaccurate data, not delivered in a timely manner, is a key driver of trade breaks, mismatched prices, and ultimately, settlement failures.