The Cross-Asset Conundrum

Sean Carr, Senior Vice President, Global Market Strategy, FactSet

The growth of global buy-side assets after the depression of the global financial crisis has introduced significant infrastructural challenges for many firms, particularly with regard to market data and analytics.With assets under management reaching $63 trillion in the global investment business, the demand for quality analytics has increased exponentially, from both buy-side investors and their sell-side colleagues. As institutions move toward a multi-asset class approach, the importance of consistent and reliable data, combined with the breadth and depth of coverage necessary to support increasingly complex and varied investment strategies, becomes ever more apparent.

Firms are also increasingly seeking greater functionality in portfolio analytics—particularly single-platform integration and accessibility to users across their firms. These core analytics, encompassing both external market data and internal portfolio data, are the backbone of an investment firm’s operations. The data is now essential to not only portfolio managers and investment analysts, but to the basic responsibilities of risk managers and compliance teams as well. Furthermore, the scope of the analytics themselves has expanded greatly as firms move into new asset classes and forge increasingly complex strategies in the quest for alpha.

Here are four key trends leading this evolution:

1. Attractive risk/return profiles have caused demand for multi-asset strategies to skyrocket.

The prevalence of multi-asset strategy offerings has grown exponentially since the 2008 global financial crisis. The days of generating alpha from traditional long-only or long-short investment strategies have passed. As 77% of portfolio managers state that they feel it is challenging to generate alpha, more are turning to alternative strategies in order to remain competitive. With attractive risk/return profiles and enhanced diversification options, the ability of multi-asset strategies to offer a path to more efficient returns has caused demand to surge in recent years.

1. Enhanced portfolio analytics are integral to supporting multi-asset strategy portfolios.

The growing prominence of multi-asset strategy (76% of firms have trading desks organized to trade on a multi-asset product basis, with most making the shift post-2008) necessitates increased demand for enhanced portfolio analytics that move beyond simply aggregating output from multiple disparate sources. More than half of firms name updated technologies as a way to improve their investment decision-making, while another quarter identify improvement in specific analytic capabilities. Unfortunately, truly effective deployments can be difficult to find, as well as implement on a firm-wide basis.

1. In-depth analytics are a necessity for the investment risk manager.

In addition to facilitating multi-asset portfolio management, enhanced and robust analytics are also a necessity for the investment risk manager; however, the maturity and integration of technology deployments for investment risk support are currently lacking for many buy-side firms—although not for any shortage in demand. More than half of risk and investment managers cite the absence of technology support as a key hindrance to risk management.

1. Portfolio management and risk management both rely on an integrated firm-wide platform.

Multi-asset portfolio managers and investment risk managers place similar demands on a firm’s technology infrastructure, as both rely on an integrated firm-wide platform capable of providing the enhanced analytics and functionality crucial to supporting multi-asset strategies. However, nearly half of firms cite lack of front-to-back integration as a major obstacle to effectively managing market risk, while 67% say their challenge is getting a complete view of risk from disparate systems. The various workflows into which risk measures feed may be a driver behind this challenge. Despite this compelling need and growing demand, many firms have yet to achieve a satisfactory state of technological deployment.

As the needs of portfolio managers and risk managers converge, firms seek a single, comprehensive process that embraces all steps of the portfolio lifecycle in a consistent manner across asset classes, be this on a single platform or through improved integration of the different functions. Moreover, underlying analytics must be robust and consistent from asset-level upwards across functions.While there is recognition of the multi-faceted nature of a portfolio,which by design is a combination of historical decisions, potential future choices, market movements, benchmark changes, and many other factors, the ability to analyze each phase and combine traditional measures with complementary and alternative data sets should be available to all.There is a universal recognition of the benefits of consistent analytics across the enterprise workflow.

Sean Carr, Senior Vice President, Global Market Strategy, FactSet

The growth of global buy-side assets after the depression of the global financial crisis has introduced significant infrastructural challenges for many firms, particularly with regard to market data and analytics.With assets under management reaching $63 trillion in the global investment business, the demand for quality analytics has increased exponentially, from both buy-side investors and their sell-side colleagues. As institutions move toward a multi-asset class approach, the importance of consistent and reliable data, combined with the breadth and depth of coverage necessary to support increasingly complex and varied investment strategies, becomes ever more apparent.

Firms are also increasingly seeking greater functionality in portfolio analytics—particularly single-platform integration and accessibility to users across their firms. These core analytics, encompassing both external market data and internal portfolio data, are the backbone of an investment firm’s operations. The data is now essential to not only portfolio managers and investment analysts, but to the basic responsibilities of risk managers and compliance teams as well. Furthermore, the scope of the analytics themselves has expanded greatly as firms move into new asset classes and forge increasingly complex strategies in the quest for alpha.

Here are four key trends leading this evolution:

1. Attractive risk/return profiles have caused demand for multi-asset strategies to skyrocket.

The prevalence of multi-asset strategy offerings has grown exponentially since the 2008 global financial crisis. The days of generating alpha from traditional long-only or long-short investment strategies have passed. As 77% of portfolio managers state that they feel it is challenging to generate alpha, more are turning to alternative strategies in order to remain competitive. With attractive risk/return profiles and enhanced diversification options, the ability of multi-asset strategies to offer a path to more efficient returns has caused demand to surge in recent years.

1. Enhanced portfolio analytics are integral to supporting multi-asset strategy portfolios.

The growing prominence of multi-asset strategy (76% of firms have trading desks organized to trade on a multi-asset product basis, with most making the shift post-2008) necessitates increased demand for enhanced portfolio analytics that move beyond simply aggregating output from multiple disparate sources. More than half of firms name updated technologies as a way to improve their investment decision-making, while another quarter identify improvement in specific analytic capabilities. Unfortunately, truly effective deployments can be difficult to find, as well as implement on a firm-wide basis.

1. In-depth analytics are a necessity for the investment risk manager.

In addition to facilitating multi-asset portfolio management, enhanced and robust analytics are also a necessity for the investment risk manager; however, the maturity and integration of technology deployments for investment risk support are currently lacking for many buy-side firms—although not for any shortage in demand. More than half of risk and investment managers cite the absence of technology support as a key hindrance to risk management.

1. Portfolio management and risk management both rely on an integrated firm-wide platform.

Multi-asset portfolio managers and investment risk managers place similar demands on a firm’s technology infrastructure, as both rely on an integrated firm-wide platform capable of providing the enhanced analytics and functionality crucial to supporting multi-asset strategies. However, nearly half of firms cite lack of front-to-back integration as a major obstacle to effectively managing market risk, while 67% say their challenge is getting a complete view of risk from disparate systems. The various workflows into which risk measures feed may be a driver behind this challenge. Despite this compelling need and growing demand, many firms have yet to achieve a satisfactory state of technological deployment.

As the needs of portfolio managers and risk managers converge, firms seek a single, comprehensive process that embraces all steps of the portfolio lifecycle in a consistent manner across asset classes, be this on a single platform or through improved integration of the different functions. Moreover, underlying analytics must be robust and consistent from asset-level upwards across functions.While there is recognition of the multi-faceted nature of a portfolio,which by design is a combination of historical decisions, potential future choices, market movements, benchmark changes, and many other factors, the ability to analyze each phase and combine traditional measures with complementary and alternative data sets should be available to all.There is a universal recognition of the benefits of consistent analytics across the enterprise workflow.