Over the past ten years, front-end systems have attracted the lion’s share of IT investment. Low-latency, high-speed automation has been the big-money game. Trading has gone electronic, international, multi-asset and cross-venue. As returns from commoditized long-only investments decrease, firms are looking to more complex trading and investment strategies in the search for higher yields. At the same time regulatory change is firmly on the agenda, and transparency and risk management have become the watch words of the financial markets.
Greater data demand
The amount of data needed by the average firm has exploded on every front. More venues, portfolios, customization, indices and data-dependent asset classes have driven up volumes. Valuations are now needed daily or even intraday – not monthly and quarterly. Balance sheet information, sales reports, regional economic projections and staff track records are becoming as important as fundamental and technical data. Even if the big-name aggregators could provide all that, other new sources would still be essential to gain competitive edge.
Hedge funds have recognized this for years: they regard non-traditional information as a major asset. But what has really changed is the swell of operational complexity in processing these increased volumes. There is much greater demand for real-time understanding of valuations, exposures and risk. Both investors and regulators want more transparency and proof that management has put adequate procedures, controls and risk checks in place – along with robust audit trails, operational oversight, and accurate and timely reporting. Regulatory arbitrage is out of the question; demonstrating a consistent approach, whether to pricing or risk management, is unavoidable.
The problem of volumes & static solutions
In short, firms have to get more data, do more with it, more often, and in a shorter timeframe. It is no longer something that can be avoided, ignored or delegated down the chain of command. A culture of data governance is needed to create robust processes around every aspect of data sourcing, selection and deployment, and to make sure they are adhered to. And just like corporate governance it needs to go all the way to the top of the organization.
But here’s the first problem: fundamentally, investment systems were never built for this volume of data and complexity. Risk management, trade processing or accounting platforms weren’t built to cope with the daily information onslaught. After a decade of spending on the glamorous front end, the investment focus has to switch back-stage to data management solutions that are needed to power trading, risk, compliance, modeling and accounting platforms.
And here’s the second – and by far the bigger – problem: the one-size-fits-all, static solution that many vendors prescribe will not solve all data-related problems across the enterprise. These are not solutions, they are another problem waiting to happen.
From one size fits all to fit-for-purpose
Any data management infrastructure has to be appropriate for the size of the firm and the type of operation. The solution that is right for a 40-person hedge fund is very different from the solution needed by a global custodian with thousands of customers and tens of thousands of employees. Most firms have multiple business units, product lines, and investment strategies – all of which require different data sets used in different ways. Compliance and risk management will need different data sets than the trading desk. Operations want data on actual holdings, while analysts use it for modeling, stress-testing and ‘what if’ scenarios. Clearly there’s no single solution for these distinct requirements.
Of course it is critical that every department operates from the same accurate, verified and unified data source. You can’t have accounting and trading working with different numbers. Data is now a strategic concern with a large number of touch points across the business whose requirements are changing much more quickly than ever before. The idea that you can impose a monolithic data management structure, with a single data set and a single management tool, onto the modern business with all its complexities is manifestly flawed.
With too many objectives, such a system is over-reaching, over-ambitious and over-complicated. It takes too long to implement and only solves the problems faced at the beginning of the project – not those at the end. No wonder it has failed so often. With data volume on an irreversible upward trend, it’s only a matter of time before such solutions collapse under their own weight.
Finding the right balance
In the real world, different parts of the firm have different IT infrastructures and operational structures and are trying to solve different problems. Where one wants to expand the asset classes or the geographical reach of their products, another will need to address compliance issues or reporting challenges. Rather than trying to solve everything at once, it is more logical to take a prioritized approach: address immediate business problems, get the data right, deliver returns and move on to the next challenge.
That requires a degree of pragmatism that is often missing from the world of data management. Meeting different business requirements demands a dynamic, federated model that brings together key enterprise data in a centralized environment, while also enabling individual units to own their data rules, mandates and preferences. Instead of relying on centralized control alone, data is distributed and made available in a truly actionable and accessible form.
However, it is critical not to lose sight of the broader issues. You can’t have lightweight, siloed systems that will not stand the rigors of today’s volumes – and tomorrow’s. You need much more flexibility and scalability than that.
Keeping sight of the long-term
Vendors need to engage with their customers and understand their problems and their long-term strategy, but few do. These are not systems to be changed every five years; rather, they are fundamental to business infrastructure and its ongoing success. A down-and-dirty implementation of an out-of-the-box system might look like a quick and easy solution, but it isn’t; it’s just sticking plaster.
This is no time for inadequate solutions and temporary palliatives. There’s no question that volumes will keep growing, regulatory pressures will increase and operational complexities will multiply. It will continue to become harder to mine, manage and make data useful without significant investments in automation. However, accurate, accessible and actionable information will remain essential for gaining competitive advantage and higher returns in today’s trading and investment environment. This is why it is time to call out old-fashioned ideas about data management, and expose them for the myths that they really are.
Not company earnings, not data but vaccines now steering investor sentiment
By Marc Jones and Dhara Ranasinghe
LONDON (Reuters) – Forget economic data releases and corporate trading statements — vaccine rollout progress is what fund managers and analysts are watching to gauge which markets may recover quickest from the COVID-19 devastation and to guide their investment decisions.
Consensus is for world economic growth to rebound this year above 5%, while Refinitiv I/B/E/S forecasts that 2021 earnings will expand 38% and 21% in Europe and the United States respectively.
Yet those projections and investment themes hinge almost entirely on how quickly inoculation campaigns progress; new COVID-19 strains and fresh lockdown extensions make official data releases and company profit-loss statements hopelessly out of date for anyone who uses them to guide investment decisions.
“The vaccine race remains the major wild card here. It will shape the outlook and perceptions of global growth leadership in 2021,” said Mark McCormick, head of currency strategy at TD Securities.
“While vaccines could reinforce a more synchronized recovery in the second half (2021), the early numbers reinforce the shifting fundamental between the United States, euro zone and others.”
The question is which country will be first to vaccinate 60%-70% of its population — the threshold generally seen as conferring herd immunity, where factories, bars and hotels can safely reopen. Delays could necessitate more stimulus from governments and central banks.
Patchy vaccine progress has forced some to push back initial estimates of when herd immunity could be reached. Deutsche Bank says late autumn is now more realistic than summer, though it expects the northern hemisphere spring to be a turning point, with 20%-25% of people vaccinated and restrictions slowly being lifted.
But race winners are already becoming evident, above all Israel, where a speedy immunisation campaign has brought a torrent of investment into its markets and pushed the shekel to quarter-century highs.
(Graphic: Vaccinations per 100 people by country, https://fingfx.thomsonreuters.com/gfx/mkt/azgvolalapd/Pasted%20image%201611247476583.png)
SHOT IN THE ARM
Others such as South Africa and Brazil, slower to get off the ground, have been punished by markets.
Britain’s pound meanwhile is at eight-month highs versus the euro which analysts attribute partly to better vaccination prospects; about 5 million people have had their first shot with numbers doubling in the past week.
Shamik Dhar, chief economist at BNY Mellon Investment Management expects double-digit GDP bouncebacks in Britain and the United States but noted sluggish euro zone progress.
“It is harder in the euro zone, the outlook is a bit more cloudy there as it looks like it will take longer to get herd immunity (due to slower vaccine programmes),” he added.
The euro bloc currently lags the likes of Britain and Israel in terms of per capita coverage, leading Germany to extend a hard lockdown until Feb. 14, while France and Netherlands are moving to impose night-time curfews.
Jack Allen-Reynolds, senior European economist at Capital Economics, said the slow vaccine progress and lockdowns had led him to revise down his euro zone 2021 GDP forecasts by a whole percentage point to 4%.
“We assume GDP gets back to pre-pandemic levels around 2022…the general story is that we think the euro zone will recover more slowly than US and UK.”
The United States, which started vaccinating its population last month, is also ahead of most other major economies with its vaccination rollout running at a rate of about 5 per 100.
Deutsche said at current rates 70 million Americans would have been immunised around April, the threshold for protecting the most vulnerable.
Some such as Eric Baurmeister, head of emerging markets fixed income at Morgan Stanley Investment Management, highlight risks to the vaccine trade, noting that markets appear to have more or less priced normality being restored, leaving room for disappointment.
Broadly though the view is that eventually consumers will channel pent-up savings into travel, shopping and entertainment, against a backdrop of abundant stimulus. In the meantime, investors are just trying to capture market moves when lockdowns are eased, said Hans Peterson global head of asset allocation at SEB Investment Management.
“All (market) moves depend now on the lower pace of infections,” Peterson said. “If that reverts, we have to go back to investing in the FAANGS (U.S. tech stocks) for good or for bad.”
(GRAPHIC: Renewed surge in COVID-19 across Europe – https://fingfx.thomsonreuters.com/gfx/mkt/xegvbejqwpq/COVID2101.PNG)
(Reporting by Dhara Ranasinghe and Marc Jones; Additional reporting by Karin Strohecker; Writing by Sujata Rao; Editing by Hugh Lawson)
BlackRock to add bitcoin as eligible investment to two funds
By David Randall
(Reuters) – BlackRock Inc, the world’s largest asset manager, is adding bitcoin futures as an eligible investment to two funds, a company filing showed.
The company said it could use bitcoin derivatives for its funds BlackRock Strategic Income Opportunities and BlackRock Global Allocation Fund Inc.
The funds will invest only in cash-settled bitcoin futures traded on commodity exchanges registered with the Commodity Futures Trading Commission, the company said in a filing to the Securities and Exchange Commission on Wednesday.
A BlackRock representative declined to comment beyond the filings when contacted by Reuters.
Earlier this month, Bitcoin, the world’s most popular cryptocurrency, hit a record high of $40,000, rallying more than 900% from a low in March and having only just breached $20,000 in mid-December.
Bitcoin tumbled 10.6% in midday U.S. trading Thursday.
Other U.S.-based asset managers will likely follow BlackRock’s lead and add exposure to bitcoin in some form to their go-anywhere or macro strategies as the cryptocurrency market becomes more liquid and developed, said Todd Rosenbluth, director of mutual fund research at CFRA.
“It’s easy to see how strong the performance has been of late and look at a historical asset allocation strategy that would have included a slice of crypto and how returns would have been enhanced as a result,” he said. “Large institutional investors are going to be able to tap into the futures market in a way that a retail investor could not do.”
There is currently no U.S.-based exchange-traded fund that owns bitcoin, limiting the ability of most fund managers to own the cryptocurrency in their portfolios.
BlackRock Chief Executive Officer Larry Fink had said at the Council of Foreign Relations in December that bitcoin is seeing giant moves every day and could possibly evolve into a global market. (https://bit.ly/2XXFHrB)
(Reporting by David Randall; Additional reporting by Radhika Anilkumar and Bhargav Acharya in Bengaluru; Editing by Arun Koyyur and Lisa Shumaker)
Bitcoin slumps 10% as pullback from record continues
LONDON (Reuters) – Bitcoin slumped 10% on Thursday to a 10-day low of $31,977 as the world’s most popular cryptocurrency continued to retreat from the $42,000 record high hit on Jan. 8.
The pullback came amid growing concerns that bitcoin is one of a number of financial bubbles threatening the overall stability of global markets.
Fears that U.S. President Joe Biden’s administration could attempt to regulate cryptocurrencies have also weighed, traders said.
(Reporting by Julien Ponthus; editing by Tom Wilson)
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