(Pictured: Jessica Donohue)
The field of data and analytics has become one of the top priorities for both fund managers and asset owners, according to a major survey by State Street. And diversification into new asset classes, coupled with the rise of multi-asset investing, is a key driver, especially for the asset owners.
The State Street survey of 400 firms and pension funds around the world, including Australia, found that 47 per cent had data and analytics as a high strategic priority, 34 per cent had it as their “most important strategic priority” and 18 per cent had it as a mid-level strategic priority.
The main industry trends driving innovation in data and analytics were cited as:
> expansion into new asset classes: 32 per cent
> expansion into new regions: 30 per cent
> growing volume of trading data: 29 per cent
> more stringent risk management standards: 29 per cent
> competitive pressure: 27 per cent
> increased demands from clients/investors: 27 per cent
> increased threats to cyber security: 25 per cent
> increased demands from regulators: 24 per cent
> electronification of trading: 22 per cent, and
> increased demands from internal staff: 17 per cent.
Commenting on the report during a regular visit to Australia, Jessica Donohue, the chief innovation officer and head of Advisory Solutions for State Street Global Exchange (GX), State Street’s Boston-based data and analytics organisation, said that while asset managers tended to think of themselves as the innovators in data and analytics, the asset owners were probably driving the push into new asset classes and strategies.
The State Street report, ‘The Innovator’s Journey’, divided the survey respondents into three stages: data starters (27 per cent), data movers (36 per cent) and data innovators (37 per cent). It’s the innovators where most investment is taking place.
Donohue said that State Street was currently working on an app for clients, based on the survey, which would allow them to benchmark themselves across the range of data and analytics issues canvassed.
State Street also announced recently that GX had opened three “investment labs”, which are a bit like an app store for investors. They are portals, each with a distinct focus, which will be followed by several more currently in development. The first three investment labs are:
> GX Risk Lab, which enables clients to create, analyse and monitor daily risk indices based on various factors.
> GX Liquidity Lab, which allows investors to estimate the shadow return and risk associated with the way they trade and deploy liquidity, and
> GX Portfolio Lab, which is a kit of multiple optimization algorithms and risk budgeting tools.
GX also has a recently launched private equity portal which allows clients to create custom benchmarks and perform manager peer comparisons based on aggregate information.
Donohue said that GX was also working on a currency hedging portal and one that encompasses new investment techniques.
In the survey, one of the respondents, Australia’s Richard Brandweiner, the CIO of First State Super, says that the quality of data available to investors outside the listed space is “problematic”. He says: “Basically, it requires using proxies and more granular modeling of each individual alternative asset, which is cumbersome and imprecise,” he says.
Because of the demand for ‘data scientists’ – not only from the funds management industry but also many others – the talent issue “is a non-trivial one”, Donohue says.
In the finance industry, for instance, firms needed their data and analytics people to have a range of skills beyond IT skills. ”You need to have people with a passion for finance and an understanding of the clients’ needs,” she says, “otherwise they won’t be innovators.”