Jeremy Katzeff, Volker Lainer, and Charlie Browne provide their insights into what this year holds in this 2024 data management outlook.
Jeremy Katzeff, CFA – Head of Buy Side Solutions
Trends in the Asset Management Space
Asset managers will be going into 2024 with the usual uncertainties, such as the US election cycle, ongoing geopolitical events, and the emergence of disruptive technologies. They will react to short term events, while continuing to take a strategic approach to how the industry and the investing landscape will look like over the next 10 years. With the recent approval of Bitcoin ETFs, exchange traded products continue to be a disruptor against traditional investment products. In addition, private market investments will continue to increase, and will favor investments that will take advantage of elevated interest rates such as private credit. As these firms expand into these new segments, they will continue to invest in technology to help them scale, increase efficiency, and remain competitive. As mentioned previously, firms are moving from plan to action with various aspects of their digital transformation, and we expect this to accelerate.
An outlook would not be complete without any discussion of AI/ML. 2023 saw the release, rapid advancement, and stall (somewhat) of next generation AI tools like Generative AI. There has been a host of products leveraging Gen-AI and large language models (LLM’s) such as Microsoft’s Co-Pilot, and platforms like Snowflake investing in capabilities for clients to leverage this in a variety of ways, and at GoldenSource we are working with potential partners on ways to accelerate things like entity matching, and automating data onboarding. As I mentioned, after the initial release this has somewhat stalled, and I would expect firms to take a more measured approach on this given other transformation projects, along with the need to examine regulatory and other risks associated with integrating Generative AI or other AI technologies into the organization.
Front to Back Solutions
I read some commentary in the recent Citisoft 2024 outlook, found it interesting and generally agreed with the thesis, and thus wanted to share here. There have been various movements towards and away from front to back solutions over the past 15 years. As recently as 4 years ago that movement seemed to be towards front to back solutions. Given the rapid development of tools to make self-service tools easier, the need for flexibility, and overall vendor risk management I feel we are once again moving back towards a mix of all-in-one and point solutions.
This does not mean that I am advocating that firms piece together a half dozen point solutions to meet their needs, but rather there is a movement towards buy-and-build vs build or buy, and even with buy it’s not a foregone conclusion that a firm will find a full front-to-back solution that meets their needs. As an example, I can see an organization focusing on a build for front office tools, outsourcing middle office functionality, and going with a mix of build and buy for data and risk management. This allows firms to allocate investment capital to core competencies that help maximize investment outcomes for their clients, while maintaining control and flexibility over other parts of their organization.
Where the technology investment is going
This is a broad topic because technology investment is somewhat firm dependent. Overall the technology investment will gravitate towards any type of digital transformation, which is grounded in the data management stack. This follows a theme I have touched on previously, but it remains at the top of the list for many organizations. Examining the end to end data lifecycle and how it touches different areas of a given asset manager is key to reach various other goals that leaders are looking to achieve. Look for investment in projects that make ingesting, cleansing, and reporting easier for end personas. Projects that will enable access to more personas, and enable firms to have high quality, actionable insights will also see more investment dollars.
Volker Lainer – Head of ESG, Connections and Regulatory Affairs
The industry is looking toward what’s to come in 2024, and ESG features prominently in many articles and events. Of particular interest are regulation, the rising demand for ESG data and data management, and the impact of AI, with healthy discussions about how both firms are looking to solve for these and what service providers are doing to help. I contributed to some articles on these topics, one in ESG Clarity and another in ESG Insight by A-team, and I encourage you to read the full articles at the links provided. Here, I’ll highlight my specific views on the topics.
ESG and Artificial Intelligence
Going into next year, the adoption of artificial intelligence (AI) and internal large language models (LLMs) are set to become more widespread to help both firms and vendors handle the depth and breadth of ESG data more efficiently.
Taking data management as an example, AI could be used to trawl through existing reports, and return with the reasoning as to why a specific KPI – such as a decrease in carbon emissions – has changed over the last year. Firms can then quickly turn this into an understandable interpretation of why particular metrics have evolved in a particular way. This functionality can be weaved into current data management systems, bringing more automation to the very lengthy ESG assessment process, and creating immediate value for buyside firms.
Nonetheless, the whole ecosystem requires transparency, and AI is no exception. It is incredibly important to be clear about exactly where and how firms engage with it. I’m sure this will occupy the minds of the regulators next year.
Many challenges with reporting and standardisation remain, with a newfound focus on climate and nature requirements set to take up more time in 2024. Carbon emission methodology has come a long way and now appears virtually a given – especially with its uniform meaning applied across regulatory regimes and disclosure frameworks globally.
Charlie Browne – Head of Market Data and Risk Solutions
The groundwork has been laid for firms to comply with the regulations discussed in the 2023 year in review. The financial markets industry will need to implement solutions that address them, and they’ll be held to account if they don’t. There is a showdown brewing between the Basel Committee and ISDA, the banking industry group, as the US has made the decision to adopt Basel III and all of its subsequent regulations while banks have claimed the regulation too onerous for them and is looking for additional guidance.
This trend isn’t showing signs of slowing, however: just this month the European Banking Authority published a consultation paper regarding amendments to the prudent valuation framework as a deep dive review of the 2016 regulation. Pruval centers primarily around calculating an uncertainty factor for your end-of-day prices, which is addressed by identifying as many sources of end-of-day prices as possible to see where your price sits among them; the more prices you have, the better the chance the price is in the center of the distribution and not an outlier. As part of this review, and others like it, the regulator is asking where the data is coming from. Firms will need to remain vigilant in 2024, looking out for both new regulations and updates to existing.
Looking again at where we’ve been, in the immediate aftermath of the financial crisis, the US took efforts to stop the bleeding and stabilize the market, issuing Dodd-Frank and stress testing then focused on getting the market back on track, whereas the EU led the way with ensuring something like this can’t happen again with a continued focus on additional regulation. There have been myriad articles written about this topic, but the fact is the industry needs both – a steady hand to right the ship and, once the storm has ended, a retrospective and guardrails to avoid a crisis in the future. Interestingly, and maybe unsurprisingly, the solution to all of this is the same: a robust, end-to-end, centralized market and pricing data repository. Such a solution ensures you have high-quality data to make the most profitable business decisions, while substantially mitigating the worry about regulations both past and future.