Data shows its worth in front office performance
Front-office users are calling for more, faster and better data. And that demand will only grow.
In a word: performance. Or more specifically, risk-adjusted performance.
Clearly, access to accurate, timely and comprehensive information is central to investment managers’ ability to make reasoned and appropriate portfolio constructions decisions, and thereby enhance performance and better manage risks.
But, increasingly, the data that will give managers the competitive edge they need comes from diverse sources and in many forms and formats. So it needs to be carefully collected, managed and interpreted.
Sourcing the right information and insights
Streamlined connectivity to the leading market data sources is one priority. Automated downloads of new prices and security information as and when they become available makes it easier to manage portfolios and take advantage of investment opportunities.
Then there’s the investment potential offered by the exponentially expanding volume and diversity of big data. There’s no doubting the significant benefits that can be gleaned. The challenge is finding the nuggets of investment gold among the growing mountains of raw information.
Here we’re seeing advanced data analytics come to the fore as key tools in investment modelling, alpha generation and risk management, helping users dig through to unearth those insights that will allow them to exploit emerging (and sometimes fleeting) market opportunities, and hone their strategies to deliver real performance value.
For instance, developments in natural language processing (NLP) are being used to improve research and inform investment decisions. New breeds of NLP tools can analyse company earnings calls to detect shifts in management sentiment that may predict future performance, or sift through analysts’ reports for wording that suggests an upcoming change to their headline forecasts. The tools can also parse through enormous volumes of unstructured data sources such as news reports, blogs, and social media, to identify potential investment trends.
Profiting from internal data
It’s not just about enhancing access to and leverage of external data sources either. Tapping into internal data flows can deliver valuable risk and performance insights.
Maintaining a robust investment book of record (IBOR) is a prime example. By providing an up to date, intraday view of all positions and transactions, a well-constructed IBOR helps front-office staff make more considered investment decisions, allowing them to monitor their exposures, remain within trading thresholds and guard against mandate drift.
Strategy for success
But there is a proviso with all this. Delivering valuable data in a scalable and extensible way without incurring enormous costs or adding headcount takes a well thought out strategy, implemented by a focused team with senior management backing. Many firms hesitate at the effort and investment that takes.
Adopting a sophisticated, data centric approach is no guarantee of top quartile performance. What it does do though is position you for success, helping your front-office staff to spot and take advantage of investment opportunities, minimise risks and help meet your clients’ financial objectives.
And in the complexity of today’s market it’s what gives firms the power to differentiate their offering from the competition.