The Innovator’s Journey: Asset Manager Insights

The Innovator’s Journey:Pathways to Data DexterityState Street 2014 Data and Analytics Survey

Asset Manager Insights

March 2015

55

5

5

8

8

1010

10

15

20

South Africa Singapore Hong KongBrazil Canada AustraliaUnited Kingdom Germany FranceChina United States of America

Source: State Street 2014 Data and Analytics Survey, conducted by Longitude Research

State Street 2014 Data and Analytics Survey

2

About the Research

Asset Managers by Country (%)

On behalf of State Street, Longitude conducted a global survey of senior executives at investment organizations during October and November 2014. We asked them to self-assess their confidence and progress across six data capabilities, including infrastructure, insight, adaptability, compliance, talent and governance. The 400 respondents were drawn from 11 countries and included insurance companies, private and public pension funds, fund-of-funds, foundations, central banks, endowments, sovereign wealth funds and supranationals. Two hundred asset managers participated in the survey.

15

36

49

Alternative strategies

Highly diversified (majorofferings in both equity/fixed

income and alternativestrategies)

Equity/fixed income strategies

Types of Asset Manager (%)

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Our Analysis Identifies Three Groups of Asset Manager

3

Data Starters Companies at an

early stage in their data journey

Data Movers

Companies actively moving toward better

data capabilities

Data Innovators

Companies with advanced data infrastructure,

expertise and high-quality data governance

23%

38%

39%

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Data Starters

Data Movers

Data Innovators

Infrastructure• Incompatible

legacy systems

• Most data in separate silos

• Separate platforms for different asset classes

• Aggregation, visualization, other data management capabilities upgraded

• Improved data integration across investment portfolio

• Infrastructure & tools fully upgraded

• Silos broken down

• Seamless integration of unstructured data

Insight Generation• Limited ability to

generate performance and risk analysis

• Fragmented view by asset class

• Ability to conduct scenario & stress testing across portfolios

• Integrated view of risk & performance across multi-asset portfolios

Adaptability• Capabilities take

much time & effort to adapt to any changes in investment strategy

• Capabilities can adapt quickly to support new products or investment strategies

Compliance• Systems struggle

to keep up with existing regulatory requirements

Skills• Data team can

manage data collection and basic analytics functions

Governance• Basic data

policies and processes in place, but governance is patchy; little standardization

• Data gaps, errors identified; cleaning under way

• Coherent, agreed framework for data governance

• Reduction in time to market for new product additions, or new asset classes

• Systems fully compliant with existing requirements, but slow to adapt to new rules

• Team can manage data collection & integration; some capabilities to perform & manage analytics

• Rich, partly integrated performance & risk analysis in individual asset classes

• Ability to analyzeperformance & risk of wide range of alternative assets

• Excellent data quality and traceability back to source

• Reporting systems adapt quickly to new requirements across global footprint

• Regular flow of insights; smooth interaction with fund managers

• Team has fully optimized data management; advanced Insight generation

• Large degree of standardization across internal databases; external providers aligned

• Strong leadership on data governance; policies & processes entrenched throughout

Note: Above sequencing is illustrative only; milestones may be reached simultaneously or in other sequences.

Our Survey Benchmarked Companies on Six Paths to Innovation

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Why Data Innovators Are Pulling Ahead of the Competition

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The Innovator’s Advantage

1. Robust, tightly integrated data infrastructure

2. Ability to join dots on data yields new insights

3. Adaptive architectures meet new business needs faster

4. Global solutions that are ready for regulatory change

5. World-class data and analytical talent

6. A sophisticated approach to data governance

Key Characteristics Marking Innovators Apart

• Innovators see data and analytics as the single most important strategic priority

• They invest more in technology — and translate this into a competitive advantage

• They can take regulatory compliance in their stride, so technology investments focus on value-adding activity

• They are exploring cutting-edge tools including big data and advanced analytics, and hiring data scientists to drive innovation

Why Starters Get Stuck, and Movers Have Further to Go

• Legacy systems prevent organizations from gaining an integrated view of investment data

• Weak data governance leaves these organizations vulnerable to problems with data integrity and security

• More than half these organizations fear their systems will not keep pace with new regulatory requirements

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Data Dexterity Gives the Innovators Much Greater Confidence For the Future

6

Please Indicate the Level of Confidence You Have in Your Institution’s Current Data Capabilities in the Following Specific Areas. (% of asset managers with high confidence)

39

42

34

35

37

46

29

12

13

19

20

12

11

12

7

0

17

9

4

4

7

0 10 20 30 40 50 60 70 80 90 100

Reducing investment costs across your asset portfolio

Evaluating risk and performance across the entire portfolio

Optimising our electronic trading strategies

Extracting investable insights from a large volume of data

Managing multiple internal and external data streams in varying format

Generating forward-looking insights from our data

Conducting comprehensive, accurate scenario and stress testing onour investment portfolio

%

Starters Movers Innovators

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Who Are the Innovators?

7 Source: State Street 2014 Data and Analytics Survey, conducted by Longitude Research


Asset Managers Are Farther Along on the Data Journey Than Asset Owners

8

23

38

40

32

35

34

Starter

Mover

Innovator

Asset Owner Asset Manager

• Most asset managers are confident in their data abilities: 40% of asset managers are Data Innovators, versus only 23% who are Data Starters

• Asset owners are less confident: 34% are Data Innovators, almost the same proportion as Data Starters (32%)

Data Starters, Movers and Innovators(% respondents, grouped by asset owners

and asset managers)

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Asset Managers In Detail: Diversified Managers Are The Real Data Innovators

9

21

45

33

21

28

51

34

34

31

Starter

Mover

Innovator

Alternative strategiesHighly diversifiedEquity/fixed income strategies

• Managers offering multi-asset strategies (diversified asset managers) are the most sophisticated asset managers when it comes to using data

• 51% of the managers offering highly diversified strategies are Innovators

Asset Managers as Innovators(% respondents, grouped by different types

of asset managers)

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Investing in Data


Asset Managers are Investing More in Data and Analytics


Which of the following statements best describes your organization’s investment in data and analytics capabilities in the past three years? (% of asset managers)

81%Of asset managers

report growth of 5% or more in the last three

years

8

21

53

16

4

Investment has increased each year bymore than 20%

Investment has increased each year bybetween 10% and 20%


Investment has been flat, or increased byless than 5%

Investment has remained flat or declinedeach year

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… But Innovators Are Investing at a Faster Rate


Which of the following statements best describes your organization’s investment in data and analytics capabilities in the past three years?(% of asset managers) 36%

of Innovators have increased investment in data

by over 10% each year

vs.

27%of Starters who raised

investment at the same rate

11

25

48

11

4

4

17

60

16

3

7

20

48

22

4







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Talent and Advanced Tools Are the Priority – But Governance Issues Must Not Be Neglected

13

But are investors giving proper attention to the fundamentals?

32

33

38

42

43

52

Ability of data systems to keeppace with regulatory requirements

Data governance (e.g. clearpolicies, processes and…

Data infrastructure

Adaptability of your data systemsto new needs

Analysis and visualisation of data

Quality and availability of datatalent

In which of the following areas do you intend to prioritize investment in the next 3 years? (% asset managers)

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Innovators Will Outspend Their Peers Across a Broad Range of Technologies

14

Over the next 3 years, what changes do you expect to the level of investment your institution makes in the following types of technology or data?

48

28

35

43

48

43

44

33

35

25

24

20

39

31

28

23

22

15

20

33

22

13

26

15

Data management system

Accounting

Compliance/reporting

Portfolio modeling/ optimisation system

Electronic trading system

Performance analytics

Risk analytics

Order management / execution management systems (OMS/EMS


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Data Strategy and Challenges


13

47

41

It is a mid-level strategic priority

It is a high strategic priority (nearthe top)

It is the most important strategicpriority

Asset Managers Understand the Value of Data


How do most senior leaders at your institution view the importance of investment data and analytics relative to other major strategic priorities?(% of asset managers)

“Our investment in data and analytics capabilities

are a source of competitive advantage for us”

27%46%

Strongly agree

Somewhat agree

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0

8

39

53

0

15

53

32

0

17

50

33

It is a low priority

It is a mid-level strategic priority

It is a high strategic priority (near the top)

It is the most important strategic priority


Data and Analytics as Their Top Priority

But Innovators Are More Likely to View This Area as a Top Priority


How do most senior leaders at your institution view the importance of investment data and analytics relative to other major strategic priorities? (% of asset managers)

53%32%

Innovators

Movers

33% Starters

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Data Volume and New Investment Strategies Drive Change

18

Which of the following are most likely to require changes to the way your firm manages investment data over the next 3 years? (% of asset managers)

17

22

22

23

24

24

29

32

36

36

Increased demands from internal staff

Electronification of trading

Increased demands from regulators

More stringent risk management standards

Increase in threats to cyber security

Increased demands from clients/investors

Competitive pressure

Expansion into new regions

Expansion into new asset classes

Growing volume of trading data

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Many Asset Managers Believe They Will Struggle to Cope With More Regulation

19

55%

Which of the following statements best characterizes your expectations for regulatory reporting requirements over the next 3 years? (% of asset managers)

1

5

48

47

Reporting requirements will ease

Reporting requirements will largely remain unchanged from today

Reporting requirements will increase, and our data capabilities will struggle tocope

Reporting requirements will increase, but our data capabilities will copeadequately

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More Than Half of Starters and Movers Will Struggle to Cope With Evolving Regulatory Reporting Requirements

20

Which of the following statements best characterizes your expectations for regulatory reporting requirements over the next 3 years? (% of asset managers)

1

5

27

67

0

5

60

35

0

4

65

30

0 10 20 30 40 50 60 70 80 90 100

Reporting requirements will ease

Reporting requirements will largely remain unchanged from today

Reporting requirements will increase, and our data capabilities will struggle tocope

Reporting requirements will increase, but our data capabilities will copeadequately


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Data Security is Paramount – As Is Accuracy

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• 78% believe data security is a key strategic issue for the investment industry

• Recent disclosures (e.g. JP Morgan) suggest they are right

• Legacy systems, siloes and plethora of providers make improving data accuracy a difficult challenge

What do you consider to be the top challenges related to investment data and analytics overall for your business today? (% asset managers)

2122

33

36

Ability to customisedata to suit different

end-user needs

Ability to extractbroader themes and

forward-looking insightsfrom data

Accuracy of dataSecurity of data

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18

23

28

28

30

30

31

32

33

Cleaning data

Working with data warehouses that are too slow

Integrating legacy systems

Reconciling older data from multiple departments

Standardising data formats across departments

Accessing external data

Working with data from external providers

Cost of external data

Integrating unstructured data

Governance Will Need to be Strong in the Highly Complex Investment Data Environment


What are the toughest data integration challenges your company faces? (% of asset managers)

55%“” “The complexity of managing our data

distracts key employees from the areas where

they should be focusing most.”

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How to Become a Data Innovator

Break the “legacy trap” by replacing outdated systems that lock your data in silos

Learn how to exploit unstructured data to drive new sources of insight

Integrate your analytics across the entire investment portfolio to spot new investment opportunities and to identify hidden risks

Embrace outsourced models and the cloud to become more flexible and cost efficient

Crack the compliance challenge with systems that can cope with global regulatory changes

Create compelling career opportunities for data scientists, and learn how to knit them into existing teams

Ensure data governance and security standards are understood by, and entrenched throughout, the organization

23

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Boutique Asset Managers


Asset managers with <50bn assets under management (AUM)

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Boutique asset managers are keeping pace on data investment


Which of the following statements best describes your organization’s investment in data and analytics capabilities in the past three years? (% of asset managers split by AUM)

81%of boutiques increased their investment in data by 5% or more over the

last three years

5%

14%

53%

23%

4%

4%

22%

54%

17%

4%

4%

16%

46%

25%

9%






$250bn + AUM

$50bn-$250bn AUM

Up to $50bn AUM

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Data is important – but boutiques don’t give it the same priority as the biggest asset managers


How do most senior leaders at your institution view the importance of investment data and analytics relative to other major strategic priorities?(% of asset managers split by AUM)

“Our investment in data and analytics capabilities

are a source of competitive advantage for us”

64%77%

Boutique asset managers with <$50bn AUM agree

Asset managers with >$250bn AUM agree

2931

50

Up to $50bn AUM $50 - $250bn AUM $250bn AUM

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Boutiques are particularly focused on adapting to meet new client demands


“Increased demands from clients” cited as a top issue driving change in the data and analytics strategy (% asset managers split by AUM)

41%Adaptability of data systems is key investment priority for the

future for boutique asset managers

31

25

18

Up to $50bn AUM $50 - $250bn AUM $250bn AUM

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The Innovator’s Journey: Asset Manager Insights

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