Custodian Banks Expand Their Data Analytics Offerings
With help from new tools that make it easier to glean useful information from portfolio data, investors can better assess pricing and risk.
As money managers seek to cut through the complexities of portfolio data, major custodian banks are stepping forward with some new analytics tools. “Right now the race is on to cover all asset classes and to have an end-to-end solution,” says Steve Vanourny, head of analytics at State Street Global Exchange. Boston-based State Street Corp. launched the division last year to encourage the development of next-generation risk analytics.
With $27.4 trillion in assets under custody and administration, State Street aims be the first custodian to make securitized credit part of the mix for clients by adding it to the firm’s truView multi-asset-class risk analytics platform. It’s a tough category to analyze, Vanourny notes: There are not only millions of securities but millions of tranches, each with its own cash flow characteristics. Through a partnership with Moody’s Investors Service, which will supply that level of detail via its WSA, or Wall Street Analytics, platform, State Street plans to expand the client-accessed online truView dashboard by including its own proprietary pricing and risk models in five categories of asset-backed securities: residential and commercial mortgages, auto and student loans, and credit card debt.
As of mid-April, State Street had yet to officially announce its deal with Moody’s, but truView already incorporates some of that modeling, with full integration expected by the third quarter, Vanourny says. “Knowing that you’ve valued every individual security allows you to put a very sophisticated, top-down stress test overlay on a bottom-up analysis,” he explains. Vanourny believes that State Street’s new capability comes at the right time, as a growing number of pension funds are looking to move more asset management in-house for cost and performance reasons.
Like other custodians, State Street offers data analytics services à la carte or as part of a package. Through 2015 global spending on buy-side portfolio and risk management software will grow at 11 percent annualized, to $1.9 billion, versus $1.5 billion last year, Boston-based research and advisory firm Celent projects. The drivers, according to Celent: investor and regulatory pressures on firms such as asset managers, hedge funds, insurers and pension funds.
David Gleason, head of data strategy at Bank of New York Mellon Corp., is contemplating how to integrate an even more esoteric category into its data analytics offerings: so-called unstructured data from such sources as analysts’ reports, news events and social media.
With 100 tweets about a given subject — as a possible example, “I hate the new iPad; it’s ridiculously overpriced” — “there’s no way to guarantee the accuracy of those tweets,” New York–based Gleason says. But with terabytes of cheap storage now the norm, the ability to gather and analyze 40 million tweets could produce “a large enough data set where you could start to weed out the outliers and get a reliable source of data on consumer sentiment,” he says.
Internally, BNY Mellon, whose assets under custody and administration total $27.6 trillion, is piloting a set of predictive indexes that incorporate unstructured data. Citing competitiveness, Gleason reveals few details but says the bank is testing new algorithms to forecast market behavior and consumer sentiment. By adding unstructured data, “we think we can offer new analytic tools that are much more predictive to model risk and exposure,” he contends. BNY Mellon’s initial models are tilted toward the broader market, but Gleason thinks they could eventually zero in on individual companies and securities.
As mobile technology proliferates, custodian banks are also making it easier to harness data in the field. By midyear Chicago-based Northern Trust Corp. plans to add remote transaction approval to the iPad app for its Passport web portal, which institutional clients use to access portfolio data and reports. Initiations must still be made from a desktop computer, but approval by iPad will “allow senior managers with certain authorization rights to work effectively even when they’re not in the office and transactions need to happen,” says Paul d’Ouville, global head of product management at the bank, which has $5.6 trillion under custody.
Since Northern Trust introduced its iPad app last fall, it has emphasized new tools for collaboration and report annotation, d’Ouville adds. The firm has made document retrieval more efficient so managers on due diligence visits can get to what’s important quickly, he says. “The dashboard and summary information highlight key aspects of manager performance: where they’re outperforming, where their exposure is concentrated.”
Northern Trust started app development with the iPad because the bank’s research showed that it was the most popular tablet for top institutional investors, d’Ouville notes. But given the growing popularity of platforms that use the Android operating system, Northern Trust’s longer-term goal is to “bring our information to the tablet format without pigeonholing ourselves by focusing on specific devices,” he says. • •
Get more on banking.