In a highly publicized application of big data, Target Corporation (NYSE:TGT) was able to track consumer purchasing patterns and preferences through mining customer data, and its analytics in fact successfully predicted that a teenage girl was pregnant – before her family knew.
The Bank of New York Mellon Corporation (NYSE:BK) and State Street Corporation (NYSE:STT) are on a hiring spree – not of MBAs, but engineers. They are the world’s largest custody banks and privy to a treasure trove of financial information relating to customers. “We’re a data-intensive business, with $26 trillion of assets flowing through the pipes of the company every day,” says John Klinck, State Street Corporation (NYSE:STT)’s head of global strategy and new ventures in a recent Reuters article on big data. The engineers will help the companies utilize this data.
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According to the article these custodian banks could earn a lucrative income stream from mining that data and marketing it in a real-time format.
Asset owners and the importance of data
State Street’s recent publication titled “The Data-Driven Investor: How Technology Changes The Game for Today’s Asset Owners,” is especially relevant to asset owners such as pension funds, banks, endowments and insurance companies.
The report is based on the results of the State Street 2013 Data and Analytics Survey that was conducted by the Economic Intelligence Unit and supported by industry interviews conducted by Longitude Research.
Asset managers looking to complex alternative assets
Prolonged periods of low interest rates after the financial crisis have forced asset owners to look to alternative assets in their hunt for higher yield.
“This shift will require asset owners to manage increasingly complex, multi-asset portfolios. One implication of this is that asset owners will need to analyze risks across a much more complex mix of financial instruments – a trend that will massively increase the volume and variety of information to process,” says the note.
The report says asset managers need much more sophisticated data analytics and data infrastructure to:
- Enhance returns
- Implement new ‘risk-oriented’ approaches to management
- Manage changing investment styles (e.g. liability-driven strategies by pension funds)
- Manage multi-asset portfolios
- Cope with massive regulatory demands
- Compete more effectively
- Reduce costs – insourcing of asset management, being one way
With regulations evolving across multiple jurisdictions, proper compliance is a huge challenge unless the asset owner is in possession of all the information on a timely basis.
“Regulators are increasingly asking asset owners to report more detailed information, and in particular to provide “look-through” data on the underlying assets in their investment portfolios,” says the report.
Asset-owners should aim to be “data leaders”
To meet these challenges, the report says asset owners must invest in innovative data infrastructure that should enable data to be captured and integrated from any source, and delivered to users in a way that is easy for them to understand and analyze.
Asset owners also need to implement innovative operating models and advanced order management and execution management systems as well as build up internal data management skills.
Early movers who leverage today’s data and analytics capabilities into competitive advantage will be tomorrow’s “data leaders.”