As seen in Ignites: Tips for Middle-Office Managers Navigating Big Data

Approximately 2.5 billion gigabytes of data are produced around the world every day, according to IBM. Government leaders, think tank members, scientists, analysts and others are working to figure out what to do with it all.

Investment management professionals are faced with data that didn’t exist a decade ago. The data contains information critical to managers’ business — information about individual securities, trades, company mandates and client communication. This information plays a role in functions ranging from billing to reporting and client acquisition to financial reconciliation. However, in trying to manage data, many firms find themselves perennially playing catch-up.

Leaders of investment management firms can leverage their data to gain key insights and find growth opportunities, but the results are only as good as their middle and back office. Collectively they are a firm’s operational and technological center and must be able to effectively distribute data and communicate analysis throughout the firm. The middle office is the front line of investment strategy execution and risk reporting. The back office — the accounting and administrative engine of the firm — must process data and ensure accuracy. To get the most out of their data, firms must reevaluate data management and performance based on three pillars.

Accuracy

Though the need for accuracy is a given, how quickly that data can be available is less certain. Many investment management firms — including those that focus on multi-asset products — work on legacy systems that weren’t built for today’s operational demands. As a result, managers often create workarounds to accommodate such circumstances. Although accurate, the process is often time-consuming.

One example of this is when managers use outdated accounting systems ill equipped to handle multiple currencies. The middle office may rely on a separate system for strategy execution, which remains cut off from the back office. The back office, meanwhile, must parse incoming data that contains currency information that cannot be systematically reconciled.

Contrast that with a manager that uses updated technology, where the back-office accounting system efficiently handles multiple currencies and the middle office can connect its preferred order execution system with portfolio-accounting records. Such streamlining facilitates firmwide communication.

Quick, efficient execution can help firms create insight and evaluate investor behavior in real time. Managers can reliably see where new assets are coming from, where they are going and which strategies are resonating with investors quickly so that they can capitalize on opportunities.

Transparency

Today’s investment environment demands a rigorous, or “radical,” transparency. This level of transparency allows for improved reporting that provides advisors with up-to-the-minute reports on how their clients’ positions change in response to market events.

This type of transparency also helps firms more easily self-govern. Regulatory reports can be generated more quickly and with less manpower.

Investment managers can review what they hold across the firm at the account level to make informed decisions about which trades the firm can make. It also helps preempt trade compliance violations, reducing risks.

Speed

Speed, accuracy and transparency are rarely achieved in tandem at firms that operate legacy systems. The modern middle office requires speed that works with the demands of their business, rather than impedes it.

When executed properly, speed allows firms to quickly distribute data without error. Transactions can be recorded almost instantly, helping to minimize potential discrepancies that can crop up when multiple traders work on the same account. Rather than waiting for an overnight update to account records, for example, pending trade activity can be reflected at the time it has been entered.

In order to determine how the middle office is performing, managers must evaluate their systems and processes by standards of streamlined accuracy, radical transparency and effective speed. With a middle office that delivers on these operational pillars, a firm likely has opportunities for growth in new channels that they may have previously considered too great of an operational burden. For example, investment management firms that focus only on institutional investors can broaden their service offering to include retail investors and private wealth clients.

As technology evolves more quickly, the types of data available to asset managers will only proliferate. Firms that succeed in the era of big data will be those that recognize the fundamental role of the middle office in not only gathering data, but distributing, analyzing and reporting it. Those firms will devote the resources necessary to achieve that data optimization, and be best positioned to use their data most effectively.

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