As depicted in the Chart, above, the early results from our short survey to Financial Services firms show that structured internal data management is maturing with active projects planned or underway, while the state of unstructured internal and external data is less mature with fewer projects—even though there is an awareness that change is needed.  

The maturity of internal structured data is reflective of the growth of data management initiatives over the last ten years to control the cost of acquiring data and also meet the growing regulatory reporting mandates for data and investment transparency. Automating data governance is the final phase of the maturity curve, with many firms currently evaluating options in this space.

Big Data often references the 3 V’s: Volume, Velocity and Variety. Whereas Structured Data in Financial Services often contains very large data sets and real time pricing and transaction data, it’s really the huge Volume (such as log surveillance) and Variety of unstructured data that adds complexity to traditional relational databases and opportunities for those firms who master it.

Anecdotally, we have seen that only the “early adopter” top tier firms -- buy side, sell side and banks – have started to invest in Big Data projects to enhance their unstructured internal and unstructured external data, and that the majority of smaller firms are aware they need to do something yet have not begun or are not sure where to start. This is despite the often quoted saying that 80% of Enterprise data is unstructured, and the well-publicized rapid growth of social analytics.

Unstructured internal data often contains valuable business insight into investment research documents (street and internal), staff on-boarding, knowledge management and client communications. Thought leading firms in many industries are investing to harvest this internal information, yet it seems to be a lower priority for financial services firms, perhaps due to the current investments in structured data projects.

Unstructured data from the web and social media is where the 3 V’s of Big Data are gaining a lot of traction with early adopters within the Financial Services industry.

• Marketers are creating highly segmented campaigns and using predictive analytics to increase conversion rates online and via social media optimization. 
  
• Traders and portfolio managers are gaining broader insight into their investments, often before traditional data providers are aware of news or can update their feeds. 
  
• Social media activity prompted the SEC to rule on April 2, 2013 that companies can use social media outlets to disclose material non-public information. 
• The power of data science and predictive analytics working on vast data sets are being used to provide competitive advantage to investors.
• Very large research databases can be managed and mined more effectively on Big Data platforms such as Hadoop and NoSQL than on traditional relational platforms.
  

It’s rewarding to be involved in such an exciting time of rapidly changing technologies.

I was extremely honored to be invited to chair the Performance Measurement and Risk track at TSAM NYC 2015 last week. Kudos to the organizers, panelist and attendees, as it was a very informative, interactive and enjoyable experience. Here are some thoughts and observations from discussions at the event:

·       The Performance Measurement teams are one of the few groups in an investment management firm that interacts with every other department from front-to-back office, prospects and clients, and increasingly with regulators. They often catch errors (trade, pricing, reference data and accounting) before anyone else.

·       Performance returns are the ultimate in story telling: A company’s strategy, research, Portfolio Management decisions, trader’s execution, client’s mandate expectations vs. benchmarks are all fully exposed. Data Visualization can help tell that story. Daily controls are key to ensure its accuracy.

·       Most Performance teams now report into Operations, but there is a growing trend to report into Risk Management. Reporting lines have been in flux for years due to the first bullet point, above.

·       Communication remains one of the biggest hurdles in resolving issues and ensuring alignment, which is exacerbated by email, Instant Messenger and text. It’s better to walk over and talk to someone if you can, or use a video chat if you can’t. The exception is to use email to document expectations with teams and vendors.

·       From a project standpoint, many firms have difficulty keeping senior management involved and engaged in long term projects (more than six months). Agile project management can help alleviate that -- if done correctly -- by delivering iterative results. Most firms engage in Proof of Concepts (POCs) when selecting a new vendor in order to fully understand functionality and potential gaps, but agree POCs are better left for a final vendor or two if a bake-off is needed.

·       Fixed Income Attribution is more commonly used for client communications, yet many front office FIA tools don’t match the official returns, creating a data management and operational challenge for many. This is a bigger challenge for multi-asset managers. (Please note that one of our Partners can help resolve this issue.)

·       Cleared Swaps have not removed clearing risk, only transformed CCP’s into systemically important risk. Furthermore, the lack of cross boarder coordination is most evident in that Dodd-Frank prohibits the US from providing liquidity to the CCP’s, which will put the pressure on the Bank of England and ECB should a shock occur again. This transformation of risk is somewhat analogous to the creation of Credit Default Swaps after the LTCM crisis, a “credit risk reduction” vehicle intended to reduce risk with the unintended consequence of adding fuel to the financial crisis fire in 2008.

·       At a round table discussion at the end of the day, it was noted how regulatory-driven bank balance sheet restrictions are adding volatility in the most “risk free” market of all: US Treasury’s. Traditional Capital Markets desks – those that remain -- are doling out liquidity based on relationships in order to keep their balance sheets in line; the slack is being taken up to some extent by hedge funds, insurance companies and even corporate treasuries. Again, what are the unintended consequences going to be?

·       While this track had little discussion regarding Big Data, we had a number of very good conversations with people in the Data Management and Sales & Marketing tracks.