Not much has changed in terms of the top ten technological priorities for U.S. asset management firms, according to recent research published by the TowerGroup. Despite four years of market upheaval, data management continues to retain its top slot. "At the core of almost everything [a firm] does is a data management function," explains TowerGroup Senior Analyst Tim Lind, who co-authored the study. "Managing money is a function of managing information."
With a host of pressures from regulators, asset management firms must now be able to retrieve a wide range of information accurately and quickly. Institutional clients, too, are adding to the stress. "Asset managers that have pension fund clients -- state retirement funds or big corporate pension funds -- are being faced with customers who are becoming more active and sophisticated in the oversight of their money manager," relates Lind. He notes that some of the clients' software tools are even more superior than those of their buy-side money managers.
It's because of these external forces that more firms are beginning to recognize that effective data management is a requirement, not a luxury. "Get the positions data right, the transactions data right, the securities and references data right, and then accurate risk management will flow, better reporting for clients will flow, and the ability to comply with the new regulatory initiatives coming down will improve," says Lind. Therefore focusing on infrastructure that will be able to store, publish and validate data in a consistent way seems to be the most logical course of action.
Of course, finding a reliable system is not as simple as it sounds. Or as cheap. Lind reports that it's not uncommon for top-tier institutions to spend an average of $30 million to $60 million on multi-year initiatives to consolidate and centralize data infrastructures. "We have even seen people spend more than that," he adds. That's hundreds of millions to billions of dollars invested on one activity alone.
The good news is the research is also showing that this may be the year firms will actually be able to afford better infrastructures. As asset managers have recovered from the declines of 2002, and are reveling in 2003's renewed profits, more firms are re-evaluating their IT budget. Their attention shifts from cost containment toward regulatory compliance and strategic investment -- yet another reason why data management reigns supreme.