Institutional investors such as pension funds and insurance firms have contractual alliances with several investment managers to accomplish organizational objectives through various investment mandates. These investment managers operate across the globe and manage portfolios that are a mix of funds, master feeder funds, and other specialist and niche funds. Gaining transparency into the aggregate portfolio becomes an inherent challenge here; the dependence on multiple stakeholders, with minimal contractual obligations to deliver on parameters relating to timeliness, scope, or quality of data sharing, aggravates the problem.
Investment managers face a host of challenges such as:
- The emergence of a wide variety of investment products such as multi-assets and fund of funds in the last decade, as well as the rise of outsourced fund management for niche sectors and regions, has added more items in the mix. This has given way to rising product complexity that impacts portfolio managers and consultants abilities to gain an instant and clear view of portfolios because of the increased dependence on multiple stakeholders.
- The lack of required data due to the wide variety of fund management solutions and in consistent data formats is another pressing challenge. The sharing of agreements from a diverse range of operating models further aggravates the problem. In addition, the involvement of multiple custodians across regions resulting in multi-asset, multi-manager models for portfolios with exposures in several indices has made investment data aggregation an arduous task.
- In a down-market scenario, investment managers find themselves incapable of conveying the value of their advice to clients. This communication gap leads investors to migrate their assets to passive investments, sacrificing alpha for lower fees and better transparency.
The need has arisen for a framework that can provide investment managers with improved visibility into their portfolios, helping them tailor products to suit customer requirements better, thereby offering value-added services. Salient features of a solution that can help aggregate data pertaining to investment products from multiple investment managers and custodians are:
- Investment managers must give specific mandates to all custodians, to provide data to institutional investors directly.
- The data provided by custodians should cover the most recent view of the entire portfolio of the institutional investor that is being managed by various portfolio managers.
- The institutional investor can use this data in an in-house or cloud-based solution for a consolidated view of all their exposures in various geographies, sectors, currencies, and so on.
- This data can also be used by the firms risk management staff to measure and track risk exposure.
Such a solution can leverage Big Data to provide a comprehensive view of investment exposures, attribution, and risk statistics, as well as identify customer investment patterns and gauge the impact of market disruptions. It can also enable investment managers to capture market opportunities better and differentiate themselves in a crowded marketplace, while adding value to the end customer.