January 24, 2011

Dow Jones Financial News Online

Managers see value of information

 

If a cynic is someone who knows the price of everything and the value of nothing, then it’s probably not a label that can fairly be attached to asset managers. They know the value of information and – increasingly – are willing to pay the price.

In the wake of the economic crisis, financial service firms had cut their consumption of market data and analysis, but a recent study conducted by information consultancy firm Burton-Taylor International Consulting LLC showed the trend has since reversed.

 

Global spend on these services rose 4.2% to $23.7bn last year and for the first time since 2008, the appetite for financial market data and analysis grew in all three major regions – the Americas; Europe, Middle East and Africa; and Asia.

The report revealed that Thomson Reuters retained its prime position with 33.3% of the market, followed by Bloomberg holding a 30.2% share. Interactive Data Corporation, Morningstar, FactSet and Standard & Poor’s/Capital IQ make up the rest of the market.

David Anderson, director and founder of Atradia, a data and technology consulting firm, said in a report last summer that one of the key developments in Europe was a near 60% reduction in market data fees for end-of-day trades.

Before this, firms would have needed to subscribe to a number of top-end services to view end-of-day prices. At the most basic level, it would have cost almost €200 per month to view around 95% of trades made on open exchanges and trading platforms. Today that figure has fallen to around €75 a month.

Frederic Ponzo, a managing partner at consultancy GreySpark Partners, said: “Fund managers are not willing to pay a lot of money for information on liquid stocks that are traded on the exchanges. Illiquid assets are different. They are much harder, as well as expensive, to gain information about.”

Gavin Little-Gill, global head of asset management product strategy for Linedata, a financial software provider, said firms that historically had done monthly reconciliations and valuations were looking for better controls from more frequent valuations and reconciliations. 

 

Little-Gill said: “They are doing this by either moving towards daily valuation with their administrator or custodian, or using third-party software to support daily or even intraday shadow valuation.”

This should provide an increased income stream for custodians, which have seen pressure on fees in other areas of the market.

Mark Schoen, global product management, EMEA, at Northern Trust, said: “Clients want greater transparency into their underlying exposures and many also want us to provide them with more detailed information such as performance attribution that will affect their decision-making processes. 

 

“It depends on the type of mandate and risk-return profile of their portfolio, but in general we are finding that people are placing a high value on this type of service.”

John Morley, managing director at JP Morgan, said: “There are information providers and service providers who are able to consolidate the data across different asset classes, venues and regions. Many asset managers do not have the data management infrastructure to do this themselves.

“Custodians that traditionally offered custody and fund accounting are moving up the value chain and providing these middle office functions. In the past, asset managers adopted a best-of-breed approach but today they are increasingly looking for a one-stop-shop provider.” 

 

Many are more than happy to regularly check their positions throughout the day instead of second by second.

Stephen Engdahl, senior vice-president at GoldenSource, a data management platform group, said: “There has been a lot of discussion about real-time information but most fund managers do not need to know where their assets and their exposures are on a real-time basis.

“This is because institutions typically hold hundreds of positions and will not want to see every tick because they will not be rebalancing their portfolios after each tick.

“They would rather see information about their portfolios updated via snapshots three to four times a day which is a much more cost-effective option.”

Bob Cumberbatch, director of European business lines at Interactive Data, added: “Asset managers’ information needs will depend on what their institutional clients want and for the vast majority evaluating net asset value on a daily basis is sufficient.

“However, many also want to regularly update their clients with reports and will take intra-day pricing data at key market times – 10am, 12pm, 2pm and 4pm – and some every half hour throughout the day.

“It is mainly hedge funds running specific strategies that need real-time streaming information.”
by Lynn Strongin Dodds