James is responsible for managing relationships with third-party providers, establishing alliances and partnerships, developing commercial strategy, and supporting clients’ ability to integrate their third-party solutions with their Arcesium environment.
In recent years, multi-asset strategies have gained popularity as managers seek to deliver strong risk-adjusted returns across diverse market conditions. Launching a new fund, strategy, asset class, or geography necessitates a comprehensive operational checklist, encompassing counterparty agreements, collateral, financing, research, environmental, social, and governance (ESG) factors, model development, risk oversight, and operational coverage. Importantly, data must be actively sourced, licensed, mastered, and integrated into workflows.
Asset managers can drive growth by adding new strategies, typically realized through launching new funds or onboarding portfolio managers with specialized expertise. This expansion requires careful consideration of data—both structured and unstructured—as well as data management and operational needs. An evaluation of existing data providers and infrastructure is crucial to identifying gaps, followed by developing a decision framework for sourcing new data and implementing systems that align with the new strategy.
When evaluating data strategy for AUM expansion, it is essential to consider ESG factors. Investors seek funds and strategies that incorporate ESG principles, and asset managers must ensure their data strategy can support the integration of ESG data and analytics. This may involve sourcing sustainability data from providers, enhancing data management capabilities for supporting ESG metrics, and developing reporting against sustainability investment initiatives.
Balancing front-to-back operations
Traditionally, the front office dictates strategy, with middle and back offices responding to support those directives. However, successful firms find a balance in data sourcing, management, and analytics across all functions. This is how mature firms manage growth more efficiently and effectively.
Functional areas often work from their own checklists, but failing to take a holistic view can lead to redundancy and inefficiency. While each area should have decision ownership over different requirements, there is a lot of overlap in terms of potential consumers, and avoiding redundancy can allow for substantial resource and cost savings. Conversely, aligning stakeholders from front to back can improve operational and risk management outcomes.
Front office teams typically need near real-time data for intra-day decision-making, whereas middle and back offices usually require end-of-day data. Front office stakeholders may need a full universe of potential investments at their fingertips, where middle and back office may only need the data on held positions. Front office stakeholders want the flexibility to enter any transaction where they see an opportunity, despite the complexity and operational overhead to support, and the middle and back office needs to be ready to handle them to complete the investment lifecycle. The less that happens in isolation, the better to avoid costly and frustrating issues. Closer collaboration between these areas can mitigate costly issues and streamline the investment lifecycle.
The front office should clearly communicate expectations regarding asset classes, transaction types, and volumes to the middle and back offices. Those closest to the relevant issues and responsible for resolving them should have a seat at the table to discuss and plan to achieve the best outcomes. Such alignment helps ensure proper resource allocation, minimizes surprises, and reduces risks. Those closest to the relevant issues and responsibility for resolving them should have a seat at the table to discuss and plan to achieve the best outcomes.
Key components for the investment lifecycle
The primary consideration in going through the checklist is to determine whether existing data sources and infrastructure will be able to sufficiently accommodate a new strategy to ensure there would be no roadblocks to launch. This should include an evaluation of the firm’s ability to integrate ESG data and analytics into the investment lifecycle.
For sophisticated firms, taking the time to determine whether the existing sources and infrastructure are optimized for the additional strategy (and potential other strategies the firm is considering in the medium term) becomes a competitive advantage. Using this as a catalyst to make changes and drive transformation might seem daunting, but it has a material payoff in avoiding unnecessary issues and costs in the long run.
Front-office considerations
The front office is typically most focused on making sure the strategy will “work” in terms of generating target profit. This includes things like sourcing and licensing data for investment research, back testing trading models, and data inputs for trading models. The data management and analytics requirements, at a minimum, typically include a database and tools for research, back testing, and trading, along with an O/EMS to carry out trading.
The front office’s primary focus is ensuring the new strategy generates target profits. This involves:
Sourcing and licensing data for investment research and back-testing, including ESG data.
Using analytics tools to inform trading models and incorporate ESG factors.
Key questions include:
Are current data providers adequate for the new strategy?
Can existing platforms handle additional volume and model requirements, and ESG analytics?
Can new or existing trading systems support new asset classes?
What additional reporting needs will arise, particularly related to performance?
Middle- and back-office considerations
The middle and back office is most focused on making sure they can support the new strategy from an operations and data management perspective, like security setup and enrichment, trade booking, asset servicing, position keeping, portfolio accounting, compliance, risk, allocations, and reporting both back to the front office and externally to regulators and investors. Especially in multi-manager or pod shops, the middle and back office sometimes has the freedom to take a house view on data requirements needed to power these workflows and more commonly have authority to determine the best tools to perform various functions. The house view could be a single ‘one-stop-shop' data aggregator or a multi-source approach consisting of best of breed providers across asset classes.
These areas concentrate on supporting the new strategy through operational and data management, including:
Security setup and trade booking
Asset servicing, ESG metrics, and portfolio accounting
Compliance and regulatory reporting, and ESG disclosures
Middle and back offices often adopt a unified approach to data sourcing, selecting providers that align with the overall strategy, including ESG considerations. This alignment can lead to a more efficient and effective operation.
For front to back functions, there are similar questions to address:
How are existing data providers considered for the new strategy, including ESG data sources?
Will existing platforms, infrastructure, and tools be able to handle any additional volume or modelling requirements?
What additional internal or external reporting requirements may result from this new strategy?
No one-size fits all approach exists with these key considerations as each business may have different priorities and strategies related to the data, and often a budget is determined based on a target return on investment (ROI) the data is expected to help generate, with some room for research and development data sourcing and analytics.
Firms evaluating new technology solutions to address the new strategy often consider whether it makes sense to implement solutions that would be more extensible to other existing and future strategies because consolidation has proven to reduce operational footprint and costs. This should include evaluating the ability of these solutions to integrate and manage ESG data effectively.
Key components of the investment lifecycle involve:
Front-office data management:
Databases for research, trading model inputs, and ESG scores
OMS capabilities to manage new asset classes and transaction volumes
Middle- and back-office data management:
Security master and portfolio accounting systems
Adequate risk and compliance frameworks
The following framework table lists some of the main data sources, licensing, data management and analytics consideration for the investment lifecycle across the front, middle, and back offices.
Visit Aquata Data Platform to learn more about Arcesium’s solution for streamlining front-, middle-, and back-office data across the investment lifecycle.
Conclusion
Successfully managing growth is a challenge across all industries. When it comes to growing AUM by taking on different investors with different requirements, launching a new strategy or new fund, or onboarding a new portfolio manager pod, there are enough challenges to consider. Don’t let shortcomings in data strategy, including the integration of ESG factors, be one of the things that holds you back.
Key takeaways
Good documentation is essential for identifying gaps and streamlining processes when launching new strategies, including ESG focused ones.
Clearly defined roles and responsibilities for decision-makers are critical.
Front-to-back stakeholder alignment fosters more effective outcomes and smoother timelines.
Solutions that integrate various strategies and operational functions can enhance agility and accelerate revenue growth.
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