The Innovator’s Journey: Asset Owners Insights

The Innovator’s Journey:Pathways to Data DexterityState Street 2014 Data and Analytics Survey

Asset Owners Insights

March 2015

2 2 55

5

7

9

1112

20

22

Hong Kong

Germany

South Africa

Singapore

Brazil

Australia

France

United Kingdom

Canada

China

United States of America

Source: State Street 2014 Data and Analytics Survey, conducted by Longitude Research

State Street 2014 Data and Analytics Survey

2

About the Research

Asset Owners by Country (%)

On behalf of State Street, Longitude conducted a global survey of senior executives at investment organizations during October and November 2014. We asked them to self-assess their confidence and progress across six data capabilities, including infrastructure, insight, adaptability, compliance, talent and governance. The 400 respondents were drawn from 11 countries and included insurance companies, private and public pension funds, fund-of-funds, foundations, central banks, endowments, sovereign wealth funds and supranationals. One hundred asset owners participated in the survey.

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Our Analysis Identifies Three Groups of Asset Owners at Different Stages in the Data Journey

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Data Starters Companies at an

early stage in their data journey

Data Movers

Companies actively moving toward better

data capabilities

Data Innovators

Companies with advanced data infrastructure,

expertise and high-quality data governance

40%

38%

22%

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Data Starters

Data Movers

Data Innovators

Infrastructure• Incompatible

legacy systems

• Most data in separate silos

• Separate platforms for different asset classes

• Aggregation, visualization, other data management capabilities upgraded

• Improved data integration across investment portfolio

• Infrastructure & tools fully upgraded

• Silos broken down

• Seamless integration of unstructured data

Insight Generation• Limited ability to

generate performance and risk analysis

• Fragmented view by asset class

• Ability to conduct scenario & stress testing across portfolios

• Integrated view of risk & performance across multi-asset portfolios

Adaptability• Capabilities take

much time & effort to adapt to any changes in investment strategy

• Capabilities can adapt quickly to support new products or investment strategies

Compliance• Systems struggle

to keep up with existing regulatory requirements

Skills• Data team can

manage data collection and basic analytics functions

Governance• Basic data

policies and processes in place, but governance is patchy; little standardization

• Data gaps, errors identified; cleaning under way

• Coherent, agreed framework for data governance

• Reduction in time to market for new product additions, or new asset classes

• Systems fully compliant with existing requirements, but slow to adapt to new rules

• Team can manage data collection & integration; some capabilities to perform & manage analytics

• Rich, partly integrated performance & risk analysis in individual asset classes

• Ability to analyzeperformance & risk of wide range of alternative assets

• Excellent data quality and traceability back to source

• Reporting systems adapt quickly to new requirements across global footprint

• Regular flow of insights; smooth interaction with fund managers

• Team has fully optimized data management; advanced Insight generation

• Large degree of standardization across internal databases; external providers aligned

• Strong leadership on data governance; policies & processes entrenched throughout

Note: Above sequencing is illustrative only; milestones may be reached simultaneously or in other sequences.

Our Survey Benchmarked Companies on Six Paths to Innovation

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Why Data Innovators Are Pulling Ahead of the Competition

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The Innovator’s Advantage

1. Robust, tightly integrated data infrastructure

2. Ability to join dots on data yields new insights

3. Adaptive architectures meet new business needs faster

4. Global solutions that are ready for regulatory change

5. World-class data and analytical talent

6. A sophisticated approach to data governance

Key Characteristics Marking Innovators Apart

• Innovators see data and analytics as the single most important strategic priority

• They invest more in technology — and translate this into a competitive advantage

• They can take regulatory compliance in their stride, so technology investments focus on value-adding activity

• They are exploring cutting-edge tools including big data and advanced analytics, and hiring data scientists to drive innovation

Why Starters Get Stuck, and Movers Have Further to Go

• Legacy systems prevent organizations from gaining an integrated view of investment data

• Weak data governance leaves these organizations vulnerable to problems with data integrity and security

• More than half these organizations fear their systems will not keep pace with new regulatory requirements

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32

55

45

18

23

59

27

24

16

24

13

11

29

16

5

3

10

5

5

5

0

Reducing investment costs across your asset portfolio

Evaluating risk and performance across the entire portfolio

Optimising our electronic trading strategies

Extracting investable insights from a large volume of data

Managing multiple internal and external data streams in varying formats

Generating forward-looking insights from our data

Conducting comprehensive, accurate scenario and stress testing on ourinvestment portfolio

Starters Movers Innovators


Data Dexterity Gives the Innovators Much Greater Confidence For the Future

6

Please Indicate the Level of Confidence You Have in Your Institution’s Current Data Capabilities in the Following Specific Areas. (% of asset owners with high confidence)

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Investing in Data

7 Source: State Street 2014 Data and Analytics Survey, conducted by Longitude Research

Asset Owners are Investing More in Data and Analytics


Which of the following statements best describes your organization’s investment in data and analytics capabilities in the past three years? (% of asset owners)

73%Of asset owners report growth of 5% or more in

the last three years

3

15

55

21

6

Investment has increased each yearby more than 20%

Investment has increased each yearby between 10% and 20%

Investment has increased each yearby between 5% and 10%

Investment has been flat, or increasedby less than 5%

Investment has remained flat ordeclined each year

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14

23

50

9

5

0

16

68

13

3

0

10

45

35

10

Investment has increased each year by more than20%

Investment has increased each year by between10% and 20%

Investment has increased each year by between5% and 10%

Investment has been flat, or increased by lessthan 5%

Investment has remained flat or declined eachyear


… But Innovators Are Investing at a Faster Rate


Which of the following statements best describes your organization’s investment in data and analytics capabilities in the past three years?(% of asset owners) 37%

of Innovators have increased investment in data

by over 10% each year

vs.

10%of Starters who raised

investment at the same rate

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Adaptable Systems Are the Priority – But Talent and Governance Is Also Key

10

In which of the following areas do you intend to prioritize investment in the next 3 years? (% of asset owners)

31

37

38

43

43

44

Analysis and visualisation of data

Data governance (e.g. clear policies, processesand leadership)

Data infrastructure

Ability of data systems to keep pace withregulatory requirements

Quality and availability of data talent

Adaptability of your data systems to new needs

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Innovators Will Outspend Their Peers Across a Broad Range of Technologies

11

Over the next 3 years, what changes do you expect to the level of investment your institution makes in the following types of technology or data? (% of asset owners)

32

18

27

23

55

45

41

32

29

29

26

29

39

34

21

18

33

18

18

13

13

13

20

8

Data management system

Accounting

Compliance/reporting

Portfolio modeling/ optimisation system

Electronic trading system

Performance analytics

Risk analytics

Order management / execution management systems (OMS/EMS)


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Data Strategy and Challenges


3

29

44

24

It is a low-level strategic priority (near thebottom)

It is a mid-level strategic priority

It is a high strategic priority (near the top)

It is the most important strategic priority

Asset Owners Understand the Value of Data


How do most senior leaders at your institution view the importance of investment data and analytics relative to other major strategic priorities?(% of asset owners)

“Our investment in data and analytics capabilities

are a source of competitive advantage for us”

19%40%

Strongly agree

Somewhat agree

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Data and Analytics as Their Top Priority

But Innovators Are More Likely to View This Area as a Top Priority


How do most senior leaders at your institution view the importance of investment data and analytics relative to other major strategic priorities? (% of asset owners)

41%24%

Innovators

Movers

15% Starters

0

9

50

41

3

24

50

24

5

45

35

15

It is a low-level strategic priority (nearthe bottom)

It is a mid-level strategic priority

It is a high strategic priority (near thetop)

It is the most important strategic priority


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Risk Standards and New Asset Classes Drive Change

15

Which of the following are most likely to require changes to the way your firm manages investment data over the next 3 years? (% of asset owners)

16

20

20

21

24

26

26

29

30

35

Growing volume of trading data

Increased demands from internal staff

Expansion into new regions

Increase in threats to cyber security

Electronification of trading

Competitive pressure

Increased demands from regulators

Increased demands from clients/investors

Expansion into new asset classes

More stringent risk management standards

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Half of Asset Owners Will Struggle to Cope With More Regulation

16

55%

Which of the following statements best characterizes your expectations for regulatory reporting requirements over the next 3 years? (% of asset owners)

3

15

49

33

Reporting requirements will ease

Reporting requirements will largely remainunchanged from today

Reporting requirements will increase, and our datacapabilities will struggle to cope

Reporting requirements will increase, but our datacapabilities will cope adequately

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But Innovators Can Keep Pace With Regulation

17

Which of the following statements best characterizes your expectations for regulatory reporting requirements over the next 3 years? (% of asset owners)

0

9

18

73

3

11

55

32

5

23

60

13

Reporting requirements will ease

Reporting requirements will largely remain unchanged from today

Reporting requirements will increase, and our data capabilities willstruggle to cope

Reporting requirements will increase, but our data capabilities will copeadequately


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Data Security is Paramount – As Is Accuracy

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• 80% believe data security is a key strategic issue for the investment industry

• Legacy systems, siloes and plethora of providers make improving data accuracy a difficult challenge

What do you consider to be the top challenges related to investment data and analytics overall for your business today? (% of asset owners)

19

2730

38

Ability to extractbroader themes and

forward-lookinginsights from data

Timeliness of dataAccuracy of dataSecurity of data

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Governance Will Need to be Strong in the Highly Complex Investment Data Environment


What are the toughest data integration challenges your company faces? (% of asset owners)

55%“” “The complexity of managing our data

distracts key employees from the areas where

they should be focusing most.”

19

20

22

25

25

27

30

31

38

Integrating legacy systems

Accessing external data

Cleaning data

Standardising data formats acrossdepartments

Integrating unstructured data

Working with data warehouses thatare too slow

Cost of external data

Working with data from externalproviders

Reconciling older data from multipledepartments

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How to Become a Data Innovator

Break the “legacy trap” by replacing outdated systems that lock your data in silos

Learn how to exploit unstructured data to drive new sources of insight

Integrate your analytics across the entire investment portfolio to spot new investment opportunities and to identify hidden risks

Embrace outsourced models and the cloud to become more flexible and cost efficient

Crack the compliance challenge with systems that can cope with global regulatory changes

Create compelling career opportunities for data scientists, and learn how to knit them into existing teams

Ensure data governance and security standards are understood by, and entrenched throughout, the organization

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The Innovator’s Journey: Asset Owners Insights