Efficient data integration has become an 'arms race'

Five years after the global financial crisis (GFC), asset owners continue to struggle with data integration and it has now become a race to strengthen portfolio management processes, according to State Street Global Advisors (SSgA) head of asset allocation Asia Pacific Mark Wills.

SSgA's 'The Asset Owners' Perspective: Evolving Investment and Operational Models' report found that nearly half (46 per cent) of asset owners rated their ability to achieve a comprehensive look-through of their portfolio across all security types and investment structures as less than good.

Another 31 per cent cited the increasing institutional appetite for alternative investments as a 'significant' factor in data integration concerns.

Wills said before the crisis asset owners were able to quickly determine their level of exposure to banks and financial institutions, largely due to the existence of the Lehman Aggregate Bond Index.

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"The corporate component of that index was pretty small, and before the GFC the sovereign component of it crept up to around 25 per cent and a huge proportion of that was financials, particularly banking exposure," he said.

"One of the problems with alternatives is that if you go to a private equity manager who's much more on the opportunistic sphere and so a lot less of single strategy, you could have exposures everywhere."

In relation to data integration and operational challenges, risk exposure and investment costs were top of the list for asset owners in the survey, with some owners observing that "managers' lack of disclosure compromised their ability to integrate data, especially at the holdings level".

As asset owners consider their portfolios in a much more holistic fashion, so too are they looking at acquiring and bolstering their management teams, Wills said.

Specifically, the main focus has been on maintaining much needed expertise at the risk management and asset allocation levels.

"The second layer of asset allocation - knowing where the exposure of the portfolio is and working out whether the assets in place are aligned to the objective of the portfolio - that's where our really smart clients are asking a lot of questions," he said.