Growing risk management concerns are fuelling serious new interest in data management strategies and solutions. KRIS DEVASABAI reports

For years a cadre of data specialists has been preaching the importance of an effective, enterprise-wide data management strategy in the asset management industry. But, for years, no one at board level appeared to be listening.

Much to the dismay of data and information officers, data management projects were habitually placed on the back burner, even as firms made multi-million dollar investments in their front office architecture.

But in the wake of the sub-prime crisis and the rogue trader scandal that hit Société Générale at the start of the year, interest in data management has risen to unparalleled levels.

Adam Honore, a senior analyst with the Aite Group, believes that efforts to improve enterprise data management (EDM) across the financial services industry will be one of the major trends of 2008.  

"The link between EDM and effective risk management is driving board level interest in data management," he says. "While neither the unauthorised trading at Société Générale nor the fall out from the sub-prime crisis would necessarily have been prevented by EDM, there is a recognition across the industry that the underlying issues could have been identified much earlier if more effective EDM strategies had been in place."  

That, says Honore, has made it a whole lot easier to secure executive buy-in, and, crucially, funding for EDM projects, despite the collective belt tightening across the financial services industry.

He predicts that the financial sector will spend in excess of $2.5bn on EDM projects this year, up from around $1.8bn in 2007.

Neil Edelstein, senior director of product solutions at GoldenSource, says the growing cache of EDM is reflected across the board, from the large multinational asset managers with complex, multi faceted data needs to small independent firms.

"We are now seeing increasing interest from hedge funds and niche asset managers," he says.

"Executives everywhere now care about the quality of the data their businesses are working with," continues Edelstein. "They want to have a single view of their data and are keen to ensure that the information being fed into their downstream risk and portfolio management systems and accounting platforms is of the highest quality."

With data management firmly positioned as a priority issue in the industry - and firm's ready to spend millions on EDM projects this year despite the squeeze on budgets - the pressure is now on the data officers and systems vendors who have been preaching the gospel of EDM to walk the talk and deliver a real return on the planned investment.

A chequered history

As many data specialists freely admit, EDM has a chequered history, laced with failed projects and unrealised objectives. "A number of financial institutions have funded high profile EDM projects in the past, but the utopia of a single master data repository fully integrated with core downstream applications has escaped most firms," says Honore.

There are a myriad of theories as to why EDM projects have suffered high failure rates.

Ashley Smith, head of business development at ValueLink, a provider of validated data to the financial services industry, says that many projects have fallen short of expectations because they were too ambitious and ill defined.

"Since the advent of STP the industry has been chasing a nirvana where automated systems process everything without any manual intervention or human oversight.

"In our experience that is often not realistic. The systems on the market today cannot accommodate the data around every instrument type, particularly at the over-thecounter (OTC) or illiquid end of the market, where automated data feeds are simply not available," he continues.

In some cases, the key to success may well be accepting that an EDM model, for all its inherent advantages, cannot be all encompassing, he says.

Smith says many firms have been able to build a more effective data model by contracting ValueLink to provide validated data around OTC instruments and illiquid securities, rather than trying to shoe-horn this data into their central data repositories.

"Many of the EDM systems just have not been able to cope when firms need to move away from vendor sourced data, particularly in relation to OTC instruments," he says.

However, that assertion is disputed by EDM systems vendors, who say they have been able to rapidly integrate new instrument types within their data models.

"There will always be instruments that fall outside the norm, but stick around, because they become normalised pretty quickly," says Goldensource's Edelstein.

"EDM can add value even where the data itself is hard to gather and difficult to standardise because irrespective of how data is sourced it can always be normalised and warehoused for both current and historical analytical purposes," he adds. 

Others say that successfully implementing EDM strategies has been a major challenge because these projects combine unique technical complexities with the political and sociological fractions that can make implementing any enterprise-wide project a huge headache.

Downstream connectivity

These factors have often played a huge role in squeezing funding for EDM projects, and even where firm's have spent millions on the purchase of a central data repository, internal disputes and politicking have combined to prevent downstream connectivity to core systems and applications.

Honore says downstream connectivity has been "by far the number one stumbling block to achieving the full promise of EDM."

"The majority of EDM projects have a very small integration scope because they are designed to resolve an immediate pain point. Far too often firms simply fail to implement the Tier 2 and Tier 3 projects that are crucial to getting the most out of the initial systems investment," he adds.

Mike Atkin, managing director of the EDM Council, agrees. He describes downstream integration as "the hot topic on the minds of financial institutions that are proactive about data management."

Downstream connectivity is a complex issue, combining many of the technical and organisational issues that make EDM projects such a challenge to implement. In order to successfully integrate a data repository downstream, data officers need to be smarter about the way they make their business case to potential data users within the organisation, says Atkin.

One strategy, he says, is to use quantitative metrics to lay bare the impact of data quality on downstream business processes as part of the battle for buy-in. "Metrics are essential in any project where you need to measure value, and data management is no different" says Atkin. "For instance, to get buy-in for a downstream connectivity project, you have to demonstrate that it can incrementally create value for specific business users based on their priorities," he adds, "and you cannot do that without metrics."

"Similarly, to win funding you will have to show that an EDM project can deliver a return on investment. Again, metrics are a vital part of that."

Atkin says data metrics programmes, including benchmarks that compare firms against their peers in the industry, are becoming increasingly common in the financial services industry.

In order to make EDM work the industry also needs to find solutions to the technical challenges associated with downstream connectivity - most notably around aligning legacy systems, with their distinct inputs and data standards with the ‘golden copy' of data held within enterprise-wide data repositories.

A recent study commissioned by Reuters found that many firms were struggling to achieve their downstream connectivity goals due to the limitations of currently available technology.

One chief data officer told the researchers: "The ability to combine data held on multiple platforms within the organisation into a holistic platform which addresses all the needs of the business units is not there."

Gary Barr, head of the Enterprise Platform, Americas at Thomson Reuters, says part of the problem is that technology vendors have, to date, focused exclusively on the creation of data warehouses, leaving users to struggle with the challenge of integrating the ‘golden copy' with downstream applications.

"Many firms end up building point to point feed handlers or adapters between the central data warehouse and various consuming applications, leading to the inevitable spaghetti mess of point-to-point connections," says Barr.

Last year Reuters launched its Enterprise Platform, which Barr says will enable financial institutions to move to a ‘plug and play' model. "The Reuters Enterprise Platform sits between the data warehouse and the consuming applications and normalises the data model so that they don't have to speak the same language. It effectively disintermediates the two systems, allowing the user to ‘plug and play' downstream applications on the basis of a single data model," says Barr.

The combination of technology innovation and increasing maturity around EDM project management means more and more firms are now closer than ever to achieving the end-promise of EDM, says Atkin. "Firms are making huge progress, but they are doing it incrementally, project by project and system by system," he says, "and some firms are actually pretty close to having the entire global organisation fully aligned with their data management strategy."

Successful completions

A number of high profile asset management companies have recently completed successful EDM projects, with notable examples including Baring Asset Management and M&G Investments. Fidelity and Pioneer Investments are also reported to have reaped benefits from implementing well thought out EDM strategies in recent years.

UK headquartered F&C Investments, which has more than £100bn in assets under management, is one of the latest buy-side firms to implement a major data management project. The firm has reworked its data model and went live with the Cadis EDM suite in October 2007 as part of a wider, ongoing, project to re-engineer its operating platform in the wake of the 2004 merger between F&C Management and ISIS Asset Management.

Peter Collins, F&C's information architect, recalls that the firm's legacy data model, like many in the industry, was based on a myriad of point-to-point connections between data sources and internal systems, which made identifying and resolving even known data errors a serious challenge.

When Collins and his team were given the go-ahead to implement a new data model, they formulated a strategy with two clear objectives. "We wanted to simplify the whole architecture and feed our core systems through a single data hub, which turned out to be Cadis system," he explains, "and, most importantly, we wanted to ensure that the data feeding the firm's core systems was accurate, complete, consistent and timely."

The data management project at F&C displays many of the hallmarks of good project management. The firm followed a very deliberate and targeted approach, taking into account the data items and requirements that the business needed to manage, and giving due consideration to downstream connectivity.

"We knew that trying to do everything in one go would be too enormous a challenge, so we have been taking on one bite-size piece at a time with the intention of scaling up when the time is right," says Collins.

For instance, the firm identified the core systems that need to be integrated with the Cadis hub and has been building connections asset class by asset class. "The model that we have in place is also very flexible, which means that we will be able to add new requirements as they arise. We always knew that our data management strategy would not remain static - it has to grow with the organisation over time," adds Collins.

The example of F&C is part of a growing file of evidence that suggests that EDM in the asset management sector is outgrowing its adolescence and reaching a point of maturity. With technologies, and more importantly, the implementation strategies of project sponsors, becoming more sophisticated, investing in EDM may no longer be the gamble that it once was.

This article was first published in the June issue of ICFA Magazine.