More than half of institutional investors plan to partly or fully outsource their data management over the next three years, according to a new survey conducted by State Street Corporation.
Amongst the firms surveyed, 52% conduct all of their data management functions in house, however, by 2021, this is expected to fall to 36%, according to the survey results, with 15% aiming to fully outsource this function to an external partner.
“Explosion in data complexity has fundamentally changed the way asset owners and asset managers compete and operate,” says Subbiah Subramanian, global head of State Street Global Exchange’s data-as-a-service offering, DataGX. “Today’s investment climate requires an overwhelming amount of data, and as the lines between front, middle and back office continue to blur, smarter data management is absolutely essential for effective performance and recognising growth opportunities.”
More than half of survey respondents, 57%, cite the driver behind this change in data management as demands from regulators. However, it also appears that data management is rapidly becoming increasingly important to institutional investors, with 30% stating that the incorporation of new information insights or alternative data into their investment process will be one of the strongest opportunities to help increase assets for their firm over the next five years.
In addition, 46% of respondents believe the implementation of a better data strategy has improved the alignment of their investment and risk teams and 22% believe their data and analytics capabilities have become their most important competitive advantage.
Interestingly, in a survey conducted by State Street in 2013, 91% of respondents said that they felt that they have had all or most of the right talent in place to advance investment data and analytics strategy, but in this most recent survey this number had dropped to 60%.
Another data point of note is that 43% of institutional investors in this most recent survey consider the lack of integration between different data sources and types as the top data management challenge.
“In an environment of increasing regulatory requirements, and with low yields necessitating investors to look into alternative – and often more complex – sources of alpha, it seems clear that institutional investors will continue to prioritise data management and analytics to make better investment decisions, meet regulatory requirements, and gain competitive advantage,” says David Pagliaro, head of State Street Global Exchange, EMEA. “It appears the natural and most effective next stage of this technological evolution is for institutional investors to partner with data and analytics specialists, allowing them to focus on their core competencies.”
This survey was conducted between March 12 and April 9, 2018. Respondents to the survey comprised institutional and alternative investors globally; in total, 86 individuals participated.