The Future Fund says it is incumbent on investors to analyse data to understand and reduce costs.
The fund is augmenting and enriching its custodian’s data with information from other providers, like Bloomberg, to run stress and crash testing on a daily basis, identifying currency and derivative exposure.
Campbell McCulloch, head of investment operations at the Future Fund described how regulatory reform in the OTC derivatives space effectively replaces exposure to investment banks gained via bilateral derivatives contracts with exposure to central clearing counterparties (CCP’s). This can be seen as a shift from “too big to fail” to “really too big to fail”. He emphasised the critical value of robust and well managed data to understand these changes in exposures and counterparty risks.
“Ultimately accuracy is key to making decisions and data is critical to the business. Having strong data on one platform, rather than it being separated in silos, will improve the quality of decisions,” he said.
Mark Neary, managing director, Asia Pacific, Milestone Group, who was on the panel with McCulloch at the Investment Administration Conference, warned that big data is not a panacea and that the access and interpretation of data is complicated. He referenced portfolio holdings disclosure as one example of this.
“If I have a headache and want to go to the chemist to get an aspirin, I probably don’t need to know what the chemical formula is, I can just take it as granted that it’s aspirin. Now if I’m a chemist I might think very hard if I get to that level of molecular formula. Portfolio holdings disclosure is a little bit like this. There’s elements of information that is relevant for the consumer, but an adviser has a different levels of granularity and a research house has a different level of granularity again. I’m not sure there’s a one-size-fits-all solution when it comes to data,” Neary said.
He agreed that better information increased investment efficiency, but thought it would “probably not” increase the efficiency of administration.
Johnathan Green, general manager investments, head of investment management, New South Wales Treasury Corporation, advocated integrating operations more closely with the investment process as another method of increasing efficiency and thereby reducing costs. He believes that the model of an integrated middle office is far more “contemporary than the silos” that have existed since the 1980s, and will allow ideas to be implemented sooner.
One of these ideas is class action recovery. Brain Slade, director of sales and relationship management, Australia and New Zealand, Goal Group, says billions of dollars have not been recovered from class actions around the world. He said this “low hanging fruit” had not been picked because it was hard to monitor all the regions where investments were and had been, and in some cases change to staff meant organisations were unaware that they could recover money.