IMPLEMENTING DATA MANAGEMENT PROCESSES:

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1 IMPLEMENTING DATA MANAGEMENT PROCESSES: HOW TO IMPROVE OPERATING EFFICIENCY AND THE CLIENT EXPERIENCE

2 TABLE OF CONTENTS Background Analysis and Teamwork Security Data Master End-of-Day and Real-time Pricing Index Constituents/Benchmarks Holdings Value

3 Background Few things confound investment firms like data. For an industry so heavily reliant on high quality data for core, critical functions, the lack of a centralized data repository and automated processes is a staggering oversight. Most firms without a data warehouse have data quality issues. While firms understand the importance of managing data and implementing processes to oversee data quality, many firms, for one reason or another, don't take the necessary steps to do so. A West Coast global investment manager with US$8 billion AUM and an international focus chose STP to manage the firm's implementation of Markit EDM, a data management platform. The firm recognized the business critical role that data played, as its in-house system was lacking in functionality. Further, it was a completely manual process prone to quality issues, which affected numerous downstream systems and applications. As the firm grew its assets, the data quality issues were further magnified since the current manual processes were not scalable. STP's expertise with establishing rigorous controls and implementing data management solutions, and leveraging products like Markit EDM and Eagle enabled the investment manager to focus on its core competencies: attracting assets and clients. The firm recognized the deficiencies in its current data environment, chiefly, that there was no data warehouse, or central repository, which ensured the quality and timeliness of critical data. With such a complicated problem affecting many downstream systems and processes, finding a partner to navigate the operational complexities was essential to the success of the implementation. 3

4 Analysis & Teamwork Overhauling a data management process is an extensive, cumbersome project, often requiring many months to complete. Even so, it's not enough to just implement a data solution like Markit EDM; retooling and refining the process supporting the entire data architecture is equally important. For an investment firm that relies upon data to not only make investment decisions, but also present client reports and performance information, data quality is not only king, it's the entire court, too. With many pressing needs, including simultaneous processing, having a flexible, friendly user interface (UI), along with expanding the investment manager's ability to use data throughout the firm, STP set out to outline a logical, phased approach. STP tapped a balance of its technical and operations expertise to not only complete a full Markit EDM implementation, but also establish effective governance processes. Complicating the investment manager's data quality was the inclusion of data from multiple sources, without a standard or best practices. Adding to the gravity of the multi-phase project was that a previous solution recommended by a consulting firm had failed. With its operational and technical expertise, STP recognized the complexity involved with data mapping across multiple sources. To build a fully functional data warehouse and governance process, STP outlined four specific, progressive project phases: Security Data Master End-of-Day and Real-time Pricing Index Constituents/Benchmarks Holdings 4

5 Security Data Master This was the longest phase of the overall project, given its importance in the subsequent phases and also the impact to the investment firm's downstream processes. Establishing and enforcing control was no easy task, and required the development of a workflow to support the security data master process. With multiple data sources, often with overlapping data points, building this framework was a mission critical task. The investment manager's holdings featured a mix of securities: international equities, futures, rights, warrants, options, index futures, currency contracts, and other derivatives. Having enriched, quality data to feed other systems, like TOMS (Trade Order Management Systems) minimizes fails and trade discrepancies that can expose firms to significant financial, operational and reputational risk. To build out a stringent, scalable and repeatable process using an EDM solution, STP established and followed a clear methodology: 1. Create security master file (CUSIP/SEDOL/ISIN/Ticker Symbol/Exchange Ticker/Price) 2. Import data from data sources 3. Review data exceptions 4. Create a golden ID for matched records 5. Create the golden copy including history 6. Export to TOMS and other systems The process of creating a golden copy is key for investment firms in increasing confidence in the reliability of their data. An important part of the golden copy process are the rules that define which data source takes priority in assembling a complete record. Notably, the investment manager, like any firm, can choose the mapping and rules supporting the security master data process. When multiple data sources exist, they are initially sourced into the data warehouse and then combined together into a golden copy record using a rules-based matching process. Where a data point doesn't exist, it can be populated by another data source, assuming other qualifiers have been satisfied. The golden copy also drives exception processing, including exceptions for FX, Corporate Actions and Pricing. For the investment manager, going from a questionable data environment to one ruled by a data warehouse, robust processes and strong governance represented a significant upgrade. 5

6 End-of-Day and Real-Time Pricing Not all data points are created equal. Pricing is perhaps the most important. Without accurate pricing, trading, performance, and reporting functions are suspect. With multiple data sources, and a now established golden copy, STP set out to develop and implement a pricing solution that included real-time, intraday and end-of-day (EOD) pricing. With an international portfolio, obtaining intraday FX rates and security price was key for the investment firm in being able to manage risk. STP implemented a pricing methodology that allowed for automated exception reporting of price discrepancies, given a predetermined tolerance. Index Constituents/Benchmarks All investment firms compare portfolios and performance to a benchmark, whether one of the large indices, like the S&P 500, or a custom, blended benchmark. Without a process by which to construct, maintain and update benchmarks, performance and client reporting will suffer from inaccuracies. To help the investment manager automate the set-up and exception processing related to benchmark construction, STP developed a process to import and validate the firm's custom benchmarks, and export the benchmarks to the performance attribution system. By improving the data management controls around benchmark set-up, STP brought much-needed confidence to the firm's performance and client reporting functions. 6

7 Holdings As any performance or investment professional will attest, an accurate display of holdings is critical to portfolio management and performance measurement. Without holdings data, performance and attribution analysis will be lacking. Worse, astute clients may notice the discrepancies. STP leveraged its operational and technical expertise to implement a solution and process to capture and assess holdings data. In doing so, STP helped the investment manager overcome a previous limitation in presenting clients with accurate and correctly calculated performance figures. A Phased Approach With a four-phase, sequential implementation, STP completed one phase, then moved to the next. Along the way, extensive parallel testing was done, mirroring the investment manager's daily functions to uncover any potential obstacles, and validate the new process. Supporting this, the investment manager deployed an internal SME to work with STP on the complete testing process. Not surprisingly, the security master data testing was the most arduous and extensive, while price testing progressed at a faster clip. Testing set the stage for go-live and the successful completion of each phase. By implementing Markit EDM, STP provided the investment manager with a significant upgrade to its previously lacking data management processes. 7

8 Value Managing data is often a daunting challenge for investment firms. Faced with a buy vs. build decision and a failed data management project in the past, the global investment manager chose to leverage STP's managed data management services via its instance of Markit EDM. STP was tasked with leading the investment firm's end-to-end Markit EDM implementation. By providing an effective balance of technical (to lead development) and operational (to lead daily BAU functions) expertise to guide the firm. STP provided the critical project resources, along with strong EDM knowledge and experience, and proficiency with establishing governance processes, to manage the multi-phase implementation. As a result of STP leading the Markit EDM implementation, the investment manager improved operating efficiency in several metrics 1. BEFORE EDM: Four people managed the process AFTER EDM: One manages the complete process 2. BEFORE: Security master process = 30 minutes for each new security AFTER: Security master process automated; completed within minutes for all securities 3. Consistent and well-defined data sourcing rules and exception handling processes across the firm 4. Reduce/minimize risk (financial, operational and reputational) 5. BEFORE: EOD pricing only available for securities held in portfolios AFTER: EOD pricing across the complete security master 6. BEFORE: Manual price calculations result in delays caused by human error AFTER: Price calculations are automated, eliminating potential for error 7. BEFORE: Manual exports of index data to portfolio attributions system AFTER: Index exports are automated and managed by EDM 8. Accurate performance and attribution, and client reporting 8

9 With its operational and technical expertise, STP provided the investment manager with numerous points of value: 1. Ability to implement and manage data 2. Run data management programs internally 3. Timely and effective deployment of onsite and offsite professional services resources ü Performing BAU functions ü Implement applications and workflows ü Staff augmentation ü Production support ü Project oversight ü Development team in India (follow-the-sun) ü Joint/shared services ü Managed Development & Product Support Team (offsite or onsite) For the investment manager, STP offered an unbiased, objective product view, while having significant expertise with EDM to implement the chosen solution, whether Markit EDM or other. With its operational and technical expertise, STP was able to guide the investment manager through the often-complex process of development, while adhering to project schedules to deliver a timely and successful Markit EDM 9