By Northern Trust
The proliferation and richness of data available to the financial services sector is already proving a profoundly disruptive force. For the asset management industry harnessing its potential is a real and urgent challenge. Most firms are well aware that maximizing their data is the critical enabler in the hunt for alpha. But their challenge is this: how to make better use of that data to position it at the top of the decision-making value chain?
Most firms that continued to maximize alpha through the turbulence of the recent period through the coronavirus pandemic-hit year have one thing in common. They recognize that intelligent and transparent data
interpretation is now essential for every investment decision. This means a full embrace of data science, based on insights and ideas generated from multiple new sources of information, as well as deeper analysis of traditional data streams.
Against that backdrop, in partnership with WBR Insights, Northern Trust recently surveyed 300 CEO’s, CIO’s, and Chief Data Information Officers from global asset management firms to find out what their strategies are for maximizing their data, how they incorporate that data into their investment process and their plans to leverage data science tools to optimize their investment performance.
1 Most firms are evolving to new digital ways of working
The business case for digital automation and the use of investment data science is compelling. 98% of our survey respondents are already using, planning to pursue or interested in incorporating data science/decision-support tools into their investment strategy beyond spreadsheets for analysis in the next 1 to 2 years.
2Firms are learning from success and failure
The majority (52%) of our survey respondents cited that the area of their organizations’ investment process that “could most benefit from data analytics” was “making their best investment ideas repeatable”. Helping managers get better at ranking their conviction is a positive outcome of data science through access to enhanced technology that helps them make the right, repeatable and measurable decisions in the quest to achieve alpha.
3 Most firms access between 5 and 8 data sources
66% of respondents said their firms currently leverage between 5 and 8 sources for their investment data. The variety of data streams fuelling the investment strategies of our firms was broad, with ESG data (59%) currently prioritized, alongside traditional factor data (MSCI, Wolfe, Axioma), cited by 55% of our respondents. But heavily in the mix now is alt data (51%) alongside consumer (27%) and sentiment data (10%), showing a clear emphasis on uncovering new sources of data to boost alpha.
4 Need exists for the consolidation of data to improve decision-making
The majority of respondents (57%) cited the need for a centralized platform to consolidate their investment data to aid decision-making. As available data sources proliferate, asset managers are looking for ways to harmonize their data sets, a need that became more pronounced during the pandemic year.
5Measuring investment skill will be increasingly digitally enabled in future
Transparency and trust are major drivers of change in the industry. 40% of our respondents said they were now using data to “evaluate performance” and qualify the decisions of their machine + human model. In addition, benchmarking results will become more critical in the light of investor scrutiny but work remains to be done. 48% of our survey respondents admitted that their organizations are still measuring the investment skill-level of their investment team by using a “qualitative measurement, which mainly relies on anecdotal evidence of proper decision-making”. And only 12% use a formal research management platform.
Our survey paints a picture of an industry that is on the cusp of massive transformational change. It indicates that global investment management are looking to harness the full potential of data in order to compete and position their firms for the future. There is growing evidence that incorporating investment data science helps managers better meet their obligations to regulators, owners and investors.
And many asset managers need to become more digitally conversant – not only because it will likely lead to improved investment outcomes, but because it is being demanded more by their stakeholders, who are leveraging data science tools to do analysis of their own.
This data science revolution poses both a serious challenge to global asset managers and an immense opportunity.
For more information read the full whitepaper The Art of Alpha: It’s All About Investment Data Science, which can be accessed here. If you would like to discuss its findings contact Gary Paulin, Head of Global Strategic Solutions.
Note: Conducted in Q2 of 2021, the survey captures responses from CEOs, Chief Investment Officers, Chief Data Information Officers and other executives of asset management firms with AUM of between US$1bn - US$750bn, and hedge fund firms with AuM of US$250m - US$10bn across the North America, EMEA and Asia-Pacific regions.
