Asset Managers Use More Data Than Ever — But Still Struggle to Manage It

Portfolio managers across the country are looking for third-party data solution providers as they encounter inadequacies in their own data infrastructure.

Illustration by II

Illustration by II

While many asset managers set data strategies as their top priorities, only a fraction of them are completely satisfied with their current data infrastructure.

That’s why more firms are outsourcing data functions, according to the results of a Nasdaq survey expected to come out Monday. The data vendor and stock exchange owner asked 200 portfolio managers across the United States in October about the challenges they face when operating under their companies’ digital framework. Only 2 percent of portfolio managers surveyed reported that they don’t have any difficulties implementing new datasets, while more than half of managers said they are not happy with their current data infrastructure.

Instead of building their own data teams, the investment managers are increasingly relying on third parties to provide data solutions, according to the survey. More than half of fundamental managers and “quantamental” managers — those who mix quantitative and fundamental approaches to investing — are at least considering outsourcing data deployment. Out of all types of managers surveyed, 40 percent are thinking about outsourcing data analytics and data sourcing functions, according to Nasdaq. Bill Dague, head of alternative data and Nasdaq Data Link, told Institutional Investor that “data enablement” has become a popular term among investment firms. This usually refers to building a team that’s responsible for curating data and managing infrastructure. Previously, individual portfolio managers were responsible for sorting their own data from various sources, including emails and their own databases that they maintained on the trade desk.

Dague added that as datasets get bigger, the costs to build and maintain infrastructure to manage that data become “expensive and time-consuming.” It can be especially frustrating for smaller investment firms because most of them don’t have devoted data teams. That’s where third parties come into play, he said.

Different types of investment managers tend to have different data needs, according to the Nasdaq survey. For quantitative managers, the lack of data talent appears to be one of the biggest challenges as 55 percent of them reported not having enough manpower to take care of data implementation. That compares to 31 percent of fundamental managers and 33 percent of quantamental managers.

For fundamental managers, their biggest challenge is the ability to quickly transfer offline data to an online environment, or the so-called “data onboarding” process. They also cited difficulties in finding data, compliance issues, and outdated technology as top obstacles to developing better data infrastructure.

“The quantitative funds are more constrained with bandwidth,” Dague said. He added that the biggest challenge for fundamental managers is that “it’s had to get the data in,” while for quantametal managers, it “seems to be finding useful relative data.”

During the outsourcing process, many managers rely on “word-of-mouth” to discover new products and keep up with data trends, according to the survey. For example, 42 percent of smaller hedge funds and 19 percent of the bigger ones cited colleagues as the top source for data products. Others are likely to turn to public sources such as news websites, conferences, and newsletters.

It’s important for asset mangers to be able to vet out meaningful data, according to Dague. “There is just incredible and unfathomable amounts of data out there,” he said. “[But] there are things that can make a dataset completely worthless.”