Financial institutions are seeking new ways to monetize their data and improve existing processes. Technological advancements such as machine learning and cloud technologies have helped them along that path, but these technologies don’t mean much if firms don’t first get their data right.
“As an industry, we’ve done quite a good job of tackling things like reference data or market data in the more standardized areas, but I’d say most firms don’t have a great handle on their investment data,” says Virginie O’Shea, CEO and founder of consultancy Firebrand Research. “That’s a much wider bucket. That can be datasets coming from your custodian and other service providers.”
Achieving a consolidated view of their data can be arduous for asset managers due to siloed business lines and duplications in data across those entities. Throw in experimenting with and using alternative data or ESG data to find alpha, and it can become more complicated.
Some data management software and services vendors are offering platforms that incorporate a unified data layer that gives asset managers a consolidated view of their data across different business silos. There could still be some pushback from end-users in switching over to such platforms due to difficulties in untangling existing systems, but it is getting easier with the shift to the cloud and to as-a-service models.
A unified data layer brings varying data sources together to offer a single view of an enterprise’s data at its most basic level. Using software-as-a-service (SaaS)-based applications and platforms could give investment managers up-to-date views of their portfolio positions while decreasing operational risk around installing and hosting hardware and performing upgrades on a less frequent basis.
For investment manager Fidelity International, reaching for that unified data layer means ensuring its data strategy is fit to handle any future changes. Yugo Ashida, head of investment solutions and services enterprise architecture at the London-based investment firm, tells WatersTechnology that Fidelity believes improving its data infrastructure will allow it to grow different areas of its business, such as its private asset business, as well as allow it to get new products to market faster.
“We’re essentially trying to make sure the data platforms we have are fit for the future and strategically placed,” Ashida says.
Helping Fidelity International get its data strategy “fit for future” is five-year-old investment management technology vendor Finbourne Technology. Fidelity International’s venture capital arm, Fidelity International Strategic Ventures, took a minority stake in Finbourne, participating alongside undisclosed investors in the latest series-A funding round completed in 2021 that raised £15 million ($20.3 million), although executives decline to quantify the value of the stake in Finbourne.
Finbourne has two platforms: Lusid and Luminesce. Lusid, through open APIs, takes in data across operational stacks and provides real-time positions, while Luminesce is a data virtualization platform providing a data fabric for analytics and insights.
Fidelity International’s Ashida says that in the traditional approach to application architecture, data is ingested into the application database where business logic sits on top to provide views into the application. With the unified data layer, that business logic is now pushed into the data layer. This provides data consistency across applications that provide different functional capabilities specific to performance attribution, risk, or portfolio construction.
“We can have a more componentized approach to building an application—different technology teams don’t need to think about some of those functions, because they’re already there in the services layer,” he says.
This approach also helps resolve the issue where people see “different versions of the truth.” While Ashida notes that not everyone needs to see exactly the same data, the way the logic is built in allows the firm to talk the same language across the different capabilities.
Finbourne was founded on the premise of building technology that mirrors the efficiency of products from Big Tech companies like Amazon and Google. Co-founder and CEO Tom McHugh says Finbourne’s founders started with the idea of building software the way asset managers would use it. “The existing systems [in investment management] are traditional, very file-based, and batch job-based,” he says.
McHugh started his career at Morgan Stanley in 2000, where he did network engineering before turning to the buy side, working in asset management on portfolio optimization and rebalancing. After a stint at the Royal Bank of Scotland in derivatives trading technology, and front-office risk and quant development, McHugh went to UBS where he met the people who later helped him found Finbourne.
“We looked around and found that there is actually a huge amount of efficiency to be brought to asset management,” McHugh says. “We looked at the fact that they sit with a lot of legal responsibilities to run their trading operations themselves, they have the fund administrators set the books and records, and they have the custody bank take safekeeping of [records] at the transfer agency.”
He says this complicated landscape with its legal obligations means asset managers face a heavy technical burden simply to operate.
Adding to these obligations is the fact that participants use different identifiers and operate in different geographies. Between identifiers—such as Sedol, Cusip, Isin, Figi, and Reuters Instrument Code—accountants, custody banks, and other participants can be looking at different data.
Alcova Asset Management is another firm using Finbourne’s Lusid platform. As a systematic asset manager, Alcova adjusts its portfolios’ long- and short-term positions on a security according to price trends.
“Our firm is very data-driven. It is therefore imperative to be able to access large amounts of data in a consistent format for us to analyze,” says Russell Hart, COO for Alcova. “After previously relying on vendors for part of the solution, and a mix of in-house systems for those requirements vendors couldn’t meet, Lusid allows us to have a central repository that is cloud based and scalable, delivering a single source of data. For meeting internal, investor and regulatory requests, this single source is imperative to have.”
Other vendors are also aiming to solve this issue for asset managers. Dan Groman, CTO for SaaS-based order execution management platform provider Enfusion, says different roles along the value chain—portfolio managers, traders, accountants, and risk analysts—aren’t always looking at the same data.
Like Finbourne’s McHugh, Groman says managers are used to systems that are more batch-based. “As orders get executed, if they have a real-time market data feed, they actually have a better insight into how their intraday performance is going than they’ve ever had in the past,” Groman says.
Batch-based data processing, while efficient for sifting through large amounts of data, doesn’t feed immediate results and doesn’t allow for real-time insights. A manager looking for immediate insight into their positions won’t have that information immediately and may need to wait until the next business day.
Enfusion’s platform was initially tailored to hedge funds, but the company has since broadened its focus to the wider investment management industry. The platform offers trading, real-time portfolio monitoring, accounting, and data warehousing and analytics.
“Often, [a manager] might have a passive investment strategy where maybe they’re following a benchmark or an index,” Groman says. “But multi-asset strategies are becoming more and more common, especially in some of the bigger players, where it really functions more like a hedge fund strategy.”
A multi-asset strategy encompasses a variety of assets like stocks, bonds, real estate and others to create a more diversified portfolio. Multi-strategy hedge funds operate similarly to use different investment strategies that can be uncorrelated but deliver returns to investors like long/short equity. Each strategy can be facilitated by a different portfolio manager.
Groman says this is where Enfusion comes in, as with the right click of a mouse, users can “unwind all of their positions,” and get a real-time view of capital and where they’ll need to make adjustments. He contrasts that to other systems where managers may have to ask themselves if their data is synchronized or if everyone is looking at the same thing.
Legacy vs. SaaS
Fidelity International Strategic Ventures’ investment in Finbourne has a specific dual purpose: strategic impact to Fidelity International and financial returns from its portfolio. The venture capital arm had spent time looking at the front-to-back investment and asset management tech stack before deciding to invest in Finbourne.
Alokik Advani, managing partner at Fidelity International Strategic Ventures, says most investment managers’ systems are built on archaic, legacy infrastructure. “A lot of that is based on third-party providers coupled with internal builds that have happened over time, that are built on old-school tech,” he says. “The organizations are running with a lot of technical debt, and have been using a bunch of plaster, sticky tape and Band-Aids to solve some of that to get ready for the next generation.”
A benefit of SaaS applications is that they can be constantly updated as they are deployed to users.
“There’s a question I always ask people who use Microsoft Office 365: How often does Microsoft release it? In once-a-year, twice-a-year release cycles? But it’s every day, probably,” says Finbourne’s McHugh. “It just works. That’s the kind of change we want to make: We deploy our kit to production customers 5, 10, 15, sometimes 20 times a day. But we write the infrastructure so that they won’t have any downtime. That’s our obligation.”
McHugh says when a developer makes a code change, it results in a higher cadence of release with much lower risks in each chunk because that developer knows the software is being deployed to the client in 45 minutes. He says firms have an advantage from using a system that allows for real-time data as opposed to legacy technology that sends out an end-of-day report.
This doesn’t mean incumbent players in this space are sitting still. In December 2021, SS&C Eze, whose Eze Eclipse platform is an all-in-one cloud native front-to-back investment management platform, launched Eze Marketplace, a cloud-based marketplace that provides access to investment management apps and other solutions.
Mike Hutner, general manager for SS&C Eze, says the new marketplace is aimed at saving asset managers time and money. “It gives you more secure, real-time capabilities, it eliminates the need for custom coding, time-consuming integration work, as well as data normalization that a lot of people have to spend a lot of time, hours, effort and money on,” he says.
Hutner says asset managers can end up using disparate systems and other non-linked tools and then must go to multiple data sources to determine how to act on an investment idea, model or review current positions.
Other incumbent vendors like SimCorp and BlackRock Aladdin also offer cloud solutions to the buy side. SimCorp rolled out a SaaS-based version of its flagship Dimension investment management platform in August 2020. SimCorp Dimension as a Service on Microsoft Azure was released as the vendor said “heightened global market conditions, increased competition and regulation” were placing higher demands on buy-side operations. SimCorp launched its multi-asset, end-to-end DataCare platform for the buy side in April 2020 for market and reference data management.
Last February, BlackRock announced a strategic partnership with Snowflake that included the rollout of the Aladdin Data Cloud, a managed data-as-a-service solution. The solution would allow clients to access a centrally managed data store pre-loaded with Aladdin datasets that can be supplemented with proprietary third-party data sources.
Chris Farrell, COO for Finbourne, says defining the company in a sea of competitors can be difficult. “We sometimes struggle with articulating our offering because we are an API-led open investment management platform,” he says. “The question we get quite a bit is, ‘What are you most like?’ We are actually different from all the offerings out there, because [firms] that buy Snowflake buy us, [firms] that buy BlackRock Aladdin buy us.” Farrell says it’s up to the client to decide whether they want to decommission other systems and use them natively or continue to use Finbourne as the bridge between all their different systems’ states.
In line with the theme of interoperability, Finbourne has integrations with the likes of Refinitiv, Bloomberg, Six Financial, Salesforce and others.
“We don’t believe in this ‘winner takes all’ or that you can have a single system view of the world. That’s actually the wrong outcome. You can’t be best at everything,” McHugh says.
A challenge remains
While there’s an appeal in having a more consolidated data view and less monolithic hardware, the switchover is easier said than done.
A chief investment officer at a large European asset manager says that the ability of a firm to make a change from legacy/incumbent technology to SaaS isn’t a guarantee. “Typically for legacy reasons or for historical reasons, firms tend to continue using what they have. So any change—even changing the custodian—is a pain. So if today I said to an asset manager, ‘Let’s move from Bloomberg to BlackRock,’ it won’t happen. There has to be a compelling reason,” the chief investment officer says.
That compelling reason could be better access to data and the ability to connect to tools and platforms that can help distill data to contextualize and find correlations among vast amounts of information.
A December 2021 survey from Nasdaq outlined quantitative, fundamental, and quantamental portfolio managers’ top data infrastructure concerns. Sixty percent of fundamental managers cited an inability to quickly onboard or deploy new data, 53% cited a difficulty finding or accessing data within their organization, 47% cited compliance, and 40% cited outdated technology as a concern.
For example, a fund may be split to be managed by two managers with different specialties. Because they are operating in the same fund, whatever actions one manager takes in terms of generating an order and or what they’re modeling, the other manager may want to see. The capabilities and the different styles, from an application point of view or technical capability perspective, might mean each manager wants a different application. Traditionally, keeping one fund manager’s views, models, or actions, on their fund, and having that appear near real time on the other portfolio manager’s desktop would be tricky, because two different applications have two different databases.
Fidelity International’s Ashida says this issue is resolved with Finbourne’s Lusid. “If you start using a single data platform, essentially, you move the application databases of those two applications into Lusid. Then you don’t really have to keep things in line because any kind of order being generated is being stored back into Lusid, and Lusid knows about it, and can be updated on the view of the other fund manager in near real time,” Ashida says.
Fidelity’s Advani adds that the buy side wants more flexibility so that they can better map and manage their tech roadmap to solve legacy issues.
“I think this marketplace, and this industry is littered with single-vendor dependency,” he says. “That creates difficulty, extreme cost, and timescales that are just inhumane, when you’re trying to create changes or improvements.”
As more vendors look to the cloud and SaaS-based services to provide a consolidated, unified view of data, the work doesn’t stop there. Perhaps the next roadblock for the legacy incumbent players lies in providing interoperability and seamless access to their clients’ third-party providers.
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