Setting up a governance program for effective management of investment product master data – Part 3 – Defining the Strategy

January 31, 2013

If you have been following the previous parts of this 10 part blog on a blueprint for rolling out a data governance program for investment product data, you will be aware that I have covered aspects such as Organization and Terms of Reference  – to this point just about everything I’ve talked about could apply to any data governance program – now I am talk more about what is specific to the investment product master domain.

Based on the terms of reference for your program, you will have briefly analyzed the drivers within your firm that led to the decision  to apply governance to your client-facing investment product data - and ideally, you will have worked with your stakeholders to construct a simple vision statement that outlines what the program is setting out to achieve.

Defining the strategy is merely adding meat to the bones of the vision statement!

I would expect that before you start exploring the strategy in any detail the following has happened:

  1. Stakeholders have all been identified and there is a broad (high-level) RACI matrix in place for each party
  2. C-Level engagement has happened and there has been formal buy-in that the program is needed
  3. Terms of reference have been drafted and agreed by all stakeholders and outline budgets and business cases documented in full
  4. C-Level executive/committee has signed off the terms/ straw-man budget

If the above has not happened, then I would politely suggest you’re wasting your time and that of many others proceeding any further.

It is likely at this stage you will have conditional approval/buy-in from the executive committee and that to progress they will want to see a detailed strategic plan on what the program will bring to the business.

From a product data perspective, it is likely your firm is facing some (or worst case all) of the following challenges which probably led to the initial discussions around …”we really need a governance program to oversee the management and publication of our investment product data“

  • A desire from a client servicing perspective to up the game when it comes to client communications so that investors have access to more timely data, more relevant data and a greater breadth and depth of information than is currently available today.
  • A realization that Dodd-Frank, Volcker, FATCA, AIFMD, UCITS IV / V, KID, Solvency II, the FSOC, the ESRB – all have a common thread – a demand for more transparency, a demand to share information that has not been shared before.
  • Demands from institutional investors to open the lid on reporting holdings in a timely manner (with not so veiled threats to pull mandates)
  • Demands from the sales/distribution team to deliver more timely and consistent information about products to just compete with competitor firms
  • High costs and lengthy lead-time to deliver technology solutions due to the evolution of a cottage industry of silos based on Excel macros and Access databases
  • Compliance team observation that certain investors have access to data about products which other investors in the same product did not receive – an issue for treating customers fairly
  • A concern that data is available to too many people who do not understand what they are “handling”, be that the sensitivity of the data, or the compliance and handling issues that could be connected to the data
  • Operations view that the process of sourcing, cleansing, storing and distributing client facing data is inefficient and error-prone
  • Compliance view that the client-facing data process is manual, non-systematic and has no audit trail
  • Challenges in the sourcing and maintenance of complex or very large data sets
  • A lack of oversight and general understanding that is leading to poor practises evolving un-checked
  • Increased regulatory change is changing the architecture of entire data environment

So, the program drivers along with the views of the stakeholders should form the evolution of the initial business requirement that will go on to form a clear strategic view of what the program is setting out to achieve.

There are many ways to express / communicate the strategy – think of how you would present a business plan – outline the goals and objectives clearly, break the goals down into stages and set them to a prioritized timeline.

Think about all of the activity that will need to happen to create a structured framework that can set about delivering the strategy:

  • Establishment of domain-specific working groups
  • Identification, agreement and documentation of the strategic business goals for the program
  • Identification and documentation of the policies that set the strategy in stone
  • Specification of the standards that will need to be agreed
  • Plans for how you will bring together the people, process and technology to deliver
  • Complete understanding and documentation of the data architecture for the data domain in scope
  • Requirements for oversight and control
  • Building out the processes and procedures for data quality management
  • Agreeing and delivering the KPIs that will allow you monitor the data quality management activities
  • Evolution of a data dictionary to ensure understanding of the data domain end-to-end
  • Identification of the Target Operating Model and the steps along the way to the future-state

So hopefully, now you will appreciate why you could be wasting a whole load of time and effort if you engage fully without having really clear buy-in at C-Level.

Next up I will discuss models for stewardship…

2 Comments | asset management, Data Governance, Data Quality, product master, Regulation | Tagged: , , , , , , , , | Permalink
Posted by Ronan Brennan

How will daily NAV disclosure impact money funds?

January 29, 2013

As posted in Ignites Q&A of the week on 25th January, I thought I would share my response here

What is the potential impact on the industry now that some mutual fund firms are starting to disclose daily NAVs for their money market funds?

Scrutiny of money market funds has never been more intense, and the industry must prepare for further changes to the regulatory regime. Specifically, daily disclosure of money market funds’ net asset value (NAV) has become a reality, and that will have ripple effects throughout the industry.

Some of the key players in the money market fund business have taken a pre-emptive move to provide the transparency that regulators and investors have been demanding since the Reserve Primary Fund broke the buck in September 2008.

The daily NAV disclosures are obviously a step toward improving fund firms’ client services to investors. Clearly, it will benefit investors by increasing transparency and helping them to better understand money market funds and their risks. But there will be operational and compliance challenges coming from this trend that fund firms must consider. Some of the measures firms will have to implement include the following:

  • Reassess existing investment processes. Fund firms will need to reevaluate their investment process to ensure that the daily shadow NAV does not materially deviate from the buck;
  • Strengthen data-reporting process. They will need to ensure they have a systematic, auditable and repeatable process for distribution of the data to market; and
  • Reevaluate communications strategy. Fund firms will need to reevaluate how they communicate the NAV to the market and gauge any potential impacts on their marketing and regulatory documents that are in the public domain.

Daily disclosure of the NAV for a money market fund gives investors the reassurance that the fund manager is committed to being transparent and open about the current state of the fund. In the past, most money managers were distributing this data monthly, which led to a level of investor angst that the fund manager was not always showing all their cards.

The breadth of securities that money market funds invest in means that each holding can have multiple levels of credit exposure, and so for many, transparency is a must.

In order to deliver the NAV daily, firms need 100% belief in their investment process. The shadow NAV must not deviate materially from the buck on an intra-month basis. Firms that are publishing daily NAVs will most likely guarantee redemptions at the buck if the shadow NAV drops below the buck.

Beyond daily NAV publication, I expect to see more announcements from asset managers on moves toward becoming more transparent in other areas as well. One of the key demands from regulators and investors is the timeliness of the publication of portfolio holdings.

Current practice sees most managers publishing data quarterly, with some publishing monthly. However, in nearly all cases, the data is embargoed or time-lagged to prevent front-running and free-riding. There is considerable pressure being brought to bear by institutional investors and regulators to increase frequency of publication to monthly across the board and reduce the embargo periods. Some asset managers are preparing for a situation where they believe ultimately a daily reporting of holdings will be demanded.

One of the biggest obstacles to becoming more transparent can be the exposure to manual processes. Fund product data comes from a variety of different sources and has to be checked and double-checked before the information can be released. An organization that validates its product data at the source and stores it efficiently can ensure it is always ready for publication. It is vital for fund firms to get their product data to market on a timely basis, ensuring it is always accurate and consistent. That includes daily money fund NAVs.

Firms must also consider the impact on marketing and regulatory documents that they distribute to the market, including their own website, in the context of any data reporting trends. Additionally, they should review how the external distribution networks, platforms, broker-dealers and other intermediaries will be impacted by any change to daily publication on short notice.

I am delighted to see this move toward transparency represented by the daily disclosure of money market funds’ NAVs.

We are going to hear more and more about investor and regulator demands for more information as the pressure to deliver transparency continues to grow. The overriding themes in asset management for the next 10 years will involve transparency and risk.

To adapt to the current environment, fund firms, especially those offering money market funds, should reassess existing investment processes, strengthen their data-reporting process and re-evaluate their communications strategy.

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Posted by Ronan Brennan

Data Governance – Terms of Reference

January 22, 2013

Setting up a governance program for effective management of investment product master data

Part 2 – Terms of Reference

So you have gone about the process of trawling your firm for the correct group to initiate a program of governance for your investment product data – what should the terms of reference be?

The first thing you must consider is the reason for the program’s existence and the purpose of the program.

Is your firm concerned about

  • Demands for greater transparency? Do you see this as a threat or an opportunity?
  • To what extent is increased regulatory change a driver?
  • Is Distribution demanding more timely and quality information?
  • Is the changing shape of  technology and data environments altering your viewpoints?
  • Are clients, whether institutional or retail, demanding greater depth and breadth of data on your products (their investments)?
  • Protecting USPs e.g. intellectual property rights (investment strategy) versus demands for more transparency?
  • Pervasion of manual error-prone processes and lack of systematic, repeatable and auditable data publication cycles.

Many of the drivers and the stakeholders which are leading to the fruition of data governance programs are at odds with each other – so it is important that the organizational C-Level backing, structure and balance is right to prevent the program being hijacked by singular viewpoints, or reaching a point of stalemate due to inability to find common ground and lack of strong leadership.

So, getting the scope and terms of reference is a key element in implementing an effective program of governance.

To move this forward – consider the following:

  1. From an organizational perspective – ensure you have a clear organization structure, with a published org chart to represent all of the stakeholders. Key questions to consider – do you have C-Level backing and participation? Is the group that will drive the program forward balanced and drawing on all interested parties within your firm? Do you have strong leadership in place to deal with conflict and prevent stalemate?
  2. Define a one sentence vision for the program – for example,”The vision of our program is to position our firm as a market leader in providing transparent, timely and high quality data to investors and regulators alike” – keep your vision simple and well understood.
  3. Outline 3 to 5 objectives for the program – these can be more tactical in nature but should align clearly to the vision – these can also change over time through agreement with the stakeholders – key here is to make sure your goals are concrete and measurable
  4. Clearly define boundaries for the program – where does the scope start and end? Specifically call out areas that are not in scope and make clear boundaries between this and other data governance programs in the organization
  5. Begin thinking about the core deliverables  required to deliver on the objectives - ensure you have quick wins identified to drive positive feedback loops early on in the program’s lifetime
  6. Ensure that  stakeholders have clear roles and responsibilities – a simple methodology to use here is construction of RACI matrices
  7. Set out a high level schedule
  8. Consider budgetary impact – will the program require its own budget, or will it draw on existing budgets?
  9. Set out the engagement framework – the frequency and format of meetings, accountability and oversight, reporting

The key thing here is to keep the initial terms of reference simple, precise and easy to communicate – 1-2 pages would be a lot better than 50-100 pages.

3 Comments | asset management, Data Governance, Data management, Data Quality | Tagged: , , , , | Permalink
Posted by Ronan Brennan

Setting up a governance program for effective management of investment product master data – Overview

January 11, 2013

I am planning a series of blog entries on a blueprint for setting up an effective program of governance for investment product data – this will be of interest to companies who might be considering implementing a solution for investment product data management – or – who might be supplementing an existing EDM data governance program with investment product information – or – who are looking on building out a program for the first time.

While the blog will be primarily focused on investment product data, it will be possible to derive valuable insight for other data types within asset management or in alternative verticals.

The following are the 10 themes I will cover over the coming weeks….

  1. Organization
  2. Terms of Reference
  3. Defining the Strategy
  4. Model for Stewardship
  5. Standards and Policies
  6. Process and Procedures
  7. Master Data Plan
  8. Data Dictionary
  9. Technology Frameworks
  10. Move to Maturity

7 Comments | asset management, Data Governance, Data management, Data Quality, distribution, product master, Regulation | Tagged: , , , , , | Permalink
Posted by Ronan Brennan

Q3 2012 – Webcast survey results – update #4

September 14, 2012

So the final question in the survey from our recent webcast was “What is your biggest challenge in getting your investment product data to market?“

Respondents were given a multiple choice of answers, being; timeliness, manual process, cost, accuracy or other.

The results broke down as follows

  • Timeliness 8%
  • Manual processes 38%
  • Cost 15%
  • Accuracy 23%
  • Other 15%

So no surprise here at all – manual process is by a long way the greatest challenge asset managers face when trying to get their investment product data in front of potential or existing investors.

We shouldn’t be surprised at all by this – the industry has seen seismic changes in the last 5 years which have resulted in dramatic changes in target operating models – the resulting pace of change has left a swathe of manual and key-man processes in its wake which now require time and attention to bring them into the new-world fold of thinking.

Wherever you find manual processes, you also uncover the following

  • Key-man risks where only a specific employee or group of employees have knowledge of how a specific task can be executed – how many times have you come across a task or spreadsheet which is named after a person who at some time in the past coded up some insane macro that worked across 10 worksheets that produces some business critical output – and – that person no longer even works for the organization….
  • Exposure to regulatory sanction – manual processes are by their nature non-systematic and provide difficulty in demonstrating auditability and repeatability traits demanded by audits and regulatory examiners.
  • High error rates – humans are particularly poor at following proceduralized instructions – overtime we believe we ‘know the procedure’ and stop following it verbatim, and then drop our guard and leave out some vital step. No amount of tick-sheets and supervisory oversight, or 4-eyes, or 6-eyes maker/maker maker/checker frameworks can stop this happening – eventually the process will fail – it always does!

Of the other responses, clearly ‘accuracy’ sticks out, with 23% of respondents indicating it is  major challenge – which is probably co-related to the high response on  manual process which has a causal effect i.e. someone may perceive their problem to be accuracy and respond as such, but who is to say the root-cause is not manual process…that’s a discussion for another day.

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Posted by Ronan Brennan

Q3 2012 – Webcast survey results – update #2

September 10, 2012

This is a continuation of the last post on the results of the recent survey from my latest webcast.

The second question in the survey asked “Would you say the investment product data that you distribute is good quality?” The results from this question were a real eye-opener – only 29% of respondents believed their investment product data was good quality.

One has to consider this alongside the answers to the first question “Do you have a formal data quality management process for client-facing data?“, where 58% of respondents indicated in the affirmative that they did have a formal quality process in place for client-facing data.

So if we assume that those who responded YES/ALWAYS to the second question also responded YES to the first question, then one could (loosely!) infer that while many firms have gone to the effort of putting in place a formal process to govern and manage client-facing data, only half of those firms believe that their process is truly effective.

What is somewhat alarming is that 43% of the respondents to our second question believe that their client-facing data is only good quality some of the time, while a further 7% believe it is not ever good quality – that is a fairly shocking result – think about it…..50% of respondents believe the data that they put in front of their clients pre- or post- investment is only good quality some of the time and in some cases is never good quality.

I believe this highlights the fact that the focus that is coming to play on investment product data is very much early-stage and the maturity of the processes that are being put in place is not fully there to deliver the repeatable quality results that will only come when the programs have delivered a fully mature process – I did a post a while ago which casts light on the data management maturity models that explains this point in detail.

In my next post I will consider the results we had for our third question “Which regulation is causing you most concern?“

So long…

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Posted by Ronan Brennan

Recent webcast survey results

September 5, 2012

For anyone who attended our webcast in July (The Impact of Upcoming Regulation on Data Management), you will be aware we conducted a survey during the webcast which asked the following questions:

  1. Do you have a formal data quality management process for client facing data?
  2. Would you say the investment product data that you distribute is good quality?
  3. Which regulation is causing you most concern?
  4. What is your biggest challenge in getting your investment product data to market?

The results were really interesting and I did promise I would post a review of the feedback – so here it is….

For question #1 “Do you have a formal data quality management process for client-facing data?” the results were really encouraging, with 58% indicating that YES they did have a formal data quality management process for client facing data – I say this is encouraging because not too long ago the core and sometimes sole focus of data governance programs was on the foundational layers of the EDM process in the middle-office  i.e. security and reference master projects, trade reconciliation, shadow accounting, and so forth – now the focus is clearly switching to include the data that asset managers are pushing into the public domain, the data that describes their own products and which is used to market, sell and position their products to the investor community – the Investment Product Master.

So while there will always be a strong requirement for governance programs to oversee and apply structure to the systems on which business intelligence is dependent  and which support the internal function of an asset management business – there is a clear realization that the information that the organizations are putting in front of clients requires equally high levels of attention.

Something else to note is that this is not a “fear-led” strategy i.e. it is not the fear of regulatory scrutiny and public sanctions that is driving this to the fore, it is in fact sales and distribution that are focussing the light on investment product data, as there is growing awareness that high quality and timely product data is a key driver in maintaining AUM and grabbing an even greater slice of available inflows – remember data is the oil in the investment sales engine!

In my next post, I will consider the results to the second question in the survey “Would you say the investment product data that you distribute is good quality?“

BTW If you missed the webcast – there is a playback link here…

1 Comment | Data management, Data Quality, product master, Regulation | Tagged: , , , , | Permalink
Posted by Ronan Brennan

What do the regulators want? The do’s and don’t's of data management when it comes to pleasing the regulators….

August 31, 2012

As published recently in TabbFORUM

Understandably, regulators are now focussed very firmly on managing market stability and ensuring the industry is treating investors fairly.

From the “Know your product and know your client” perspective, asset managers and more specifically their distribution wings have to be seen to market and sell product that is specifically appropriate to each client and their specific circumstances.

The regulator (and I refer to them in general terms here) – is looking for accuracy, completeness, and timeliness – and – they are looking for appropriate and consistent use of data in all public communications with investors – be that – fact-sheets, web, RFP responses or institutional client reports.

Sales and marketing material for investment products is coming under increased scrutiny – the regulators are now treating such material as disclosure of material fact.

Additionally, certain specific clients or client segments – cannot be seen to be treated “more fairly” than others – particularly where there is a conflict of interest between retail and institutional clients in the same investment pool – and – the timeliness of disclosure to all invested parties.

From a management of market risk perspective, the regulators are starting to demand additional reporting and data – specific items of interest relate to;  leverage – liquidity – exposure to derivatives – and – concentration of risk – with strong initial focus on counter-party and,  region or sector specific exposure, hence the focus on the Legal Entity Identifier and identification of the ultimate parent.

So what are the DO’s and DON’T's of data management?
DO

  • ensure you have a governance program in place that covers publication of client-facing product data
  • deploy systematic repeatable processes
  • consider building audit trails into each process
  • empower your data stewards with the tools they need to do their job well
  • build a hierarchy of stewardship from upstream to downstream i.e. throughout the publication cycle process

DON’T

  • rely on excel and macros
  • use manual processes
  • expose your firm to key-man risk
  • employ the just-in-time operating model where data is amended by client reporting and marketing teams just prior to publication
  • underestimate the impact of publishing inconsistent, untimely, inaccurate or just plain bad data!

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Posted by Ronan Brennan

On Regulation: AIFMD

August 15, 2012

The AIFM (Alternative Investment Fund Managers) Directive, which is focussed on improving transparency in the alternative investments market place, is coming soon.

ESMA published its final technical advice on the 16th of November 2011, with the deadline for transposition into national law happening in July 2013.

Getting ready for AIFM requires managers, and to a lesser extent depositories, to start taking action as soon as possible. Many of the key players in the market have already carried out high level impact assessments and operating model reviews, and although ESMA’s approach on reporting frequency was welcomed, specifically how they propose to relate reporting frequency to ‘fund and firm’ AUM, there was disappointment with the failure to change the substance of the reporting and the 1-month deadline for reporting  (note: fund of fund structures will have an extra weeks).

So what is the directive looking to achieve? Well, once registered with their national regulator, firms will be required to offer enhanced disclosure on their risk management program and open the lid on their investment strategies. The key element here is increasing transparency and oversight, so that the regulator can monitor exposure to systemic risk, and make sure investors in the alternatives space are being treated fairly.

In addition, the industry is going to be forced to provide more data to investors in advance of, and post any investment in the funds concerned. The disclosure to investor requirements relate to any change in liquidity requirement, risk profile, disclosure of risk management processes and disclosure of % of assets that are subject to special arrangements.

ESMA’s approach to leverage has attracted a lot of attention and public commentary. ESMA is proposing more regular disclosure requirements to investors which would cover changes to the maximum level of leverage, to the rights of re-use of the collateral, to the nature of guarantees granted and of the total leverage employed in the portfolio and their business as a whole.

The directive also requires firms to maintain up to date data on the securities they are trading, including standards based support for security identification, with additional details required on principle exposures and risk concentration.

Depositories will be required to monitor and request data from funds, and to perform additional due diligence on the custodian and prime brokers.  All players in these markets will therefore be compelled to invest in their risk and data management infrastructures, and product data (holdings, classifications, portfolio allocation views)  must be quickly accessible for reporting purposes. This activity is driving many firms to re-assess their data management strategies, infrastructure and operating models so that they are positioned to react when the regulation comes into full force in less than a years time.

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Posted by Ronan Brennan

Webcast available for on-demand playback…

August 10, 2012

For those of you who missed the recent webcast on regulation and its impact on data management strategies in the investment fund world, it is available for playback here…

4 Comments | Data management, Data Quality, Dodd Frank, Event, FATCA, KIID, RDR, Regulation, RFP, RFP, Survey, UCITS, Volcker Rule | Tagged: , , , , , , , , , , , , , , , , , , , , , | Permalink
Posted by Ronan Brennan

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