Investment Operations Challenges: it’s all about the data

Key themes from IBR Investment Operations Challenges 2023 Forum in Sydney – By Stephen Huppert, Independent Consultant

AlphaCert attended the recent IBRC Investment Operations Challenges Conference, and data was a significant theme throughout the two-day event. Following on from our previous blog by COO Scott Taylor on “What is a data driven operating model in the context of investment operations”, this blog by Stephen Huppert delves deeper into the themes of the conference and the panel featuring Scott.

Panel Summary: 

Scott was part of the “Building A Data-Driven Operating Model” panel, moderated by blog author, Stephen Huppert, including Christian Eriksen from ICS and William Walker from Cutter Associates. 

Christian opened the discussion with a call to investment operations teams to grab the opportunity to become the data stewards of their organisations and increase their value to the business. According to Christian, becoming data-driven is to ensure that data management is not being done multiple times in multiple parts of the organisation. 

Scott’s view of a data-driven operating model is one where the right people have the data they need in the format they need in a timely fashion—it’s about the flows. 

From William’s perspective, any investment organisation that is not data-driven is in trouble, as data is the foundation of investment management. All three panellists agreed that the level of data maturity is not where it needs to be, and Scott directed the audience to the AlphaCert Data Management Maturity Model as a helpful tool for self-assessment. 

When it came to the role of the custodian, William acknowledged that the custodian is good for historical data. However, the Front Office needs more than historical data to do its job effectively. Christian and Scott see the custodian as a key player in the data ecosystem. Christian called on custodians to become better at data delivery—that should be their number one job. 

Scott raised ‘budget’ as one of the main barriers to having a data-driven operating model. William agreed that investment operations teams are being asked to do more with less and stressed that it is vital to be clear on the problem you are trying to solve. Christian urged organisations to be clear on what they want to be: technologists or asset managers, and then to find the right partners. 

Conference themes: 

Data was a key topic throughout the two-day conference. Discussing the implications of ESG investing on the back office, both Todd Yarrow from SS&C Technologies and Julia Leske from ISS ESG agreed that “it is all about the data”. Julia advised the audience to be well-informed about the data and what it really measures before using it. 

Many organisations are undergoing M&A activity or other major transformations. Amy Spencer from EY talked about the role of data management in all aspects of that activity. She highlighted the need for a good understanding of the organisation’s information architecture and having an integrated portfolio management system that consolidates all public and private assets, provides a holistic view and can slice and dice in different dimensions. She said the range of providers in the market is vast, and there is no ‘best’ provider out there. However, there is a best fit for your business—the right one for you. 

Cian O’Driscoll from FRS also raised the importance of data governance and data quality in his presentation on improving operational resilience. He said using data across systems and teams creates complexities and introduces significant risk to daily operations. He called for a single source of truth and warned that “poor data governance can have disastrous, or even fatal consequences”. 

Several investment operations leaders referred to finding good people as a significant challenge, especially those with data and coding skills. Recruiter Jack Brown agreed and said demand is significantly outstripping supply. 

Another consistent theme was the sharper focus on operational risk is becoming sharper, especially following APRA’s release of the revised Prudential Standard CPS 230 Operational Risk Management. Joe McDavitt from Battleground told the audience that “compliance is a state, it’s a lifestyle”. He pointed out that CPS 230 requires us to understand and manage the controls over our critical operations, and this will require a mindset shift by investment operations teams. There might be 20 months to go before the 1 July 2025 commencement of the new standard, but there is plenty to be done. Brian O Marnain of Bennelong Funds Management agreed and said that the investment operations teams will be critical in operationalising these compliance edicts and a general demand for increased transparency from all stakeholders.  

Spreadsheets were often referred to as a significant source of operational risk. There was some acknowledgement that spreadsheets are a good starting point for developing proof of concepts or testing new ideas, but they should not be seen as permanent, long-term solutions. Evolving from spreadsheets to more robust solutions is essential to ensure processes are sustainable, repeatable and controlled. Amy Spencer from EY said that having your investment platform and investment operations heavily Excel-based leads to manual processes, interconnection issues, scalability challenges and high operational risk. 

PowerBI probably received as many mentions as Excel, causing Matt Baynes of Funds SA to wonder whether, in a few years, we might be talking about the proliferation of PowerBI dashboards as a source of operational risk in much the same way we are talking about Excel today. 

Overall, it was a good two days with plenty for the participants to consider when returning to their workplaces. The role of data and sound data management will continue to be central to investment operations teams. With the challenges of finding good people, the importance of strong strategic partners is going to grow.