How and why asset managers are investing more on data

Key Takeaways

• The right data set is key for effective asset management.
• Asset managers are willing to invest more for quality data.
• Emerging tech set to play bigger role in data delivery and consumption.

Choosing the right data has long been a crucial factor for asset managers when developing investment strategies and analyzing investment decisions. However, with the growing adoption of advanced technologies, there has been a significant change in how data is sourced and utilized.

Coalition Greenwich and SIX recently published a report scrutinizing how asset management companies are embracing emerging tech for market data consumption and are willing to invest substantially in high-quality data.

Asset managers today prioritize quality, accuracy, and reliability when choosing market data types, frequency, and vendors. They are also increasingly adopting advanced technologies like cloud and APIs, and are enhancing their use of Artificial Intelligence (AI) and Machine Learning (ML) for data analytics.

All market participants agree that “the cost of data is secondary to its quality,” the Greenwich says, and they are ready to spend heavily on acquiring the right tools and resources.

How data delivery systems are shifting in asset management

While legacy systems remain widespread, cloud adoption is rapidly gaining momentum. Half of the respondents in the recent Coalition Greenwich survey said they are receiving data using internet connectivity from the public cloud. Participants also noted that more and more asset management companies are also moving towards dedicated connections from the public cloud, though the use of internet-based solutions is still common.

This indicates that asset managers prefer “more efficient technology for tasks that go beyond non-critical, low-volume or low-latency services.” They anticipate a sharp increase in the use of private clouds too in the coming years.

Another trend suggests APIs are projected to become the preferred interface for accessing market data, ultimately driving a decline in the use of desktop solutions and other legacy file transfer systems.

According to an Accenture report, the dependence on cloud is growing in asset management because:

• The cloud accelerates data capture, curation, and publication for operational and analytical reporting. It also enhances the scalability and governance of exploratory data science environments to handle structured and unstructured data.
• Cloud-based CRM can boost efficiency and effectiveness, helping firms manage client relationships better.
• SaaS solutions are now available for trading-, middle-, and back-office operations, paving the way to future rationalization at a lower cost.
• Cloud-based shared services reduce costs, breaking down existing vertical silos and facilitating more effective enterprise data transformation.
• Cloud-based risk engines offer scalable, on-demand solutions, ideal for handling large, complex risk calculations efficiently.

Data usage in asset management: Identifying future trends

On how data consumption patterns in asset management are anticipated to change in the next few years, Coalition Greenwich notes:

• Spending on market data is projected to rise steadily again next year, particularly in equities trading and investing.
• The evolution of investment and trading strategies is influencing how asset managers are choosing market data sources and providers. Today, data-related decisions are mostly made by local business units rather than being dependent on teams in key regions.
• The use of real-time data is becoming a real game changer, driving higher spending and greater adoption of APIs. Trends suggest the use of APIs will significantly increase in the next 3-5 years.
• Though most asset managers still use internet to access data, many of them are moving towards cloud-based solutions.
• Emerging technologies are set to enhance market data delivery at some point in the future. More than 70% of participants in the Coalition Greenwich survey believe AI/ML will play the biggest role in improving data delivery and consumption.

Key areas where spending is likely to increase

According to McKinsey and Company, “The application of advanced analytics to specific business problems has started to deliver value for traditional asset managers—not by replacing humans but by enabling them to make better decisions quickly and consistently.” Firms are using these tools to enhance distribution effectiveness, boost investment performance, and increase productivity in middle and back office operations.

Over the next 3-5 years also, data and analytics are expected to remain the leading trend in asset management, a BNY Mellon report predicts. Integrating data sources and improving transparency are the priorities right now, but the challenge is the growing complexity of data and its applications. New technologies like ML and blockchain offer potential solutions. Hence, both asset managers and owners are keen to invest heavily in tech-related tools.

Finding in-house solutions is not off the table, but asset managers and owners are taking different approaches to this. Asset managers are looking to hire more specialist staff and increase spending on digital plans. On the other hand, asset owners are exploring partnerships, including co-creating new products and leaning more on existing financial service providers. Both are, however, keen on AI advancements to drive change in their businesses.

Superior analytics capabilities are expected to be a key driver of future industry success. For asset managers, who are under pressure to cut costs and boost efficiency in a competitive environment, it’s more critical than ever, not only to obtain quality streams of data, but to adopt automated, scalable solutions that enable them to make data-driven decisions in real time.