Heightened Regulatory and Investor Mandates for Increased Transparency Prompting Shift in Data Management Best Practices
Throughout 2015, the asset management industry has begun a fundamental shift in the way they view and approach data management. After years of increased regulatory and investor demands for heightened transparency, asset management back-office technology and data have become highly fragmented. The recent regulatory push has also driven asset managers to collect volumes of data about their business and investing strategies.
Confluence predicts the asset management industry is on the verge of a data management revolution in 2016. The industry will focus on identifying more efficient data management models that deliver both heightened transparency to investors as well as deeper insight into the business.
“Our industry has already gone through a transformation sparked by regulatory concerns with managing both systemic and liquidity risk, and that focus has left firms responsible for far more data than ever before," said Todd Moyer, Executive Vice President, Global Business Development at Confluence. “In 2016, we predict the asset management industry will see streamlining and optimizing their data management processes as a way to reduce risk, manage cost and create new business opportunities."
Confluence predicts three major changes across the asset management industry next year:
- Data management reform in the asset management industry will top C-level agendas in 2016
- Chronic regulatory fatigue will continue as the asset management industry prepares for next round of mandates
- Decreased institutional tolerance for self-administered private equity firms will accelerate the back-office outsourcing trend
Data management reform in the asset management industry will top C-level agendas in 2016
Asset managers are at a tipping point in their ability to efficiently manage the volume of data for which they are now responsible. Outdated and manual data management processes in the back office will increasingly be viewed as a liability and cost to the firm, and executives will look to implement wholesale restructuring of how data is managed across the enterprise. Initiatives will focus on data consolidation projects that lower costs and remove the risks associated with data fragmentation.
"The issue of data management will be a focal point in the asset management executive suite over the next year," Moyer said. "There will be a complete rethinking of industry best practices, associated costs and returns that improved data management will deliver to the firm. Thinking will extend beyond how to meet the next regulatory or investor demand and focus on how to create a sustainable data management model that ensures data flexibility, accessibility and reusability for the long term."
Chronic regulatory fatigue will continue as the asset management industry prepares for next round of mandates
Since the economic crisis, regulators have shifted their focus to identifying and managing systemic risk in the market and ensuring that firms can better understand and manage their own liquidity risk. The active regulatory environment has led to a flood of new data and technology solutions for asset managers, and there is little sign that new mandates and their associated data requirements will slow any time soon.
The U.S. Securities and Exchange Commission Modernization proposal—expected to be finalized in early 2016—will affect 9,000 advisers to separately managed accounts and 13,000 mutual funds. In Europe, the new AIFMD reporting continues to impact a larger number of fund managers as the regime is expanded to non EU jurisdictions. Solvency II, an insurance regulation, will create additional reporting burdens for asset managers in 2016.
"The ongoing regulatory push for greater transparency has certainly delivered benefits to the market and investors alike," Moyer added. "But achieving this level of transparency in the market has required an extensive investment of time and money, and quite frankly there is little sign that those costs won't continue to rise. These regulatory mandates have made inefficient and ineffective data management approaches no longer an option for asset managers."
Decreased institutional tolerance for self-administered private equity firms will accelerate the back-office outsourcing trend.
Private equity as an asset class has grown significantly in recent years. With that growth has come new requirements from institutional investors, who are beginning to demand a much higher standard of transparency and control. In 2016, there will be an accelerated pressure on private equity firms to outsource their back-office operations. One of the biggest catalysts for this trend was the Madoff scandal in 2008, which highlighted the inherent risk in self-administered funds. Given the long investment lock-up periods in private equity, independent administration is just now becoming a key issue for investors. In 2016, it will be a critical component in determining which funds receive institutional allocations.
"Investors are holding private equity fund managers to a higher standard of transparency and control, and there is a decreased level of institutional tolerance to allocate investments to private equity funds that are self administered." Moyer said. "From our perspective, this is very much a trend about third-party service providers expanding their support capabilities to play the same role they do in other asset classes. There are already a few fund administrators responding to this need, but we believe several more solutions will come to market in 2016 and beyond."