98 per cent of managers are seeking to incorporate data science to optimise investment performance, says Northern Trust survey

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Investment managers pressured by rising costs, increased transparency demands and the need to generate consistent performance are looking to harness the full potential of data in order to compete and position their firms for the future, according to a survey of 300 global asset management firms sponsored by Northern Trust.  

Northern Trust today issued a white paper, The Art of Alpha: It’s All About Investment Data Science, that offers insights into how asset managers can improve investment outcomes with data strategies that better leverage technology, applying data science and behavioural analytics to processes that have historically resided on spreadsheets or other documents. 

“This survey shows asset managers are aware of the need to implement a digital operating model that enables efficient and safe growth, but at the same time are rightly focused on the imperative to spend scarce capital wisely,” says Paul Fahey, head of Investment Data Science (IDS) at Northern Trust. “As evidence grows around the value of investment data science, asset managers are looking to their data to help them drive high quality outcomes so they can invest more effectively in their core activities.”

The survey, conducted for Northern Trust by WBR Insights, shows asset managers recognise the value of centralised data platforms for decision making: 98 per cent of respondents are already using, planning to pursue or interested in incorporating data science/decision-support tools into their investment process in the next one to two years.

However, while 57 per cent of respondents said their data strategy includes leveraging a central platform for investment data consolidation, nearly half (48 per cent) admitted that their organisations are still measuring the investment skill-level of their investment team by using a “qualitative measurement, which mainly relies on anecdotal evidence of proper decision-making.”

This incongruence was evident in other responses. Nearly half have a system to measure decision-making and inputs, but only 12 per cent use a formal research management platform that is not based on spreadsheets. Only a quarter of respondents (24 per cent) use a decision support platform to identify drivers of performance and behavioural root causes at a more granular and individualised level.

The survey data presents a view of current data science capabilities and the ambitions of global asset managers in the next two years, as well as some of their key strategic priorities:

• 66 per cent of respondents said they currently leverage five to eight sources of investment data, with ESG data (59 per cent) and traditional factor data (55 per cent) prioritised but alternative, consumer and sentiment increasingly used in the search for new sources of alpha

• 52 per cent said their organisations are still using spreadsheets to aggregate internal and fundamental data; other data sources are accessed manually (email, PDF, etc) and integrated to make investment decisions

• 52 per cent of respondents said “making their best investment ideas repeatable” was the investment process that could most benefit from data analytics

“There is growing evidence that incorporating investment data science helps managers better meet their obligations to regulators, owners and investors,” says Gary Paulin, head of Global Strategic Solutions at Northern Trust. “Asset managers need to become more digitally conversant, not only because it will lead to improved investment outcomes, but because it’s being demanded more by their stakeholders, who are leveraging data science tools to do analysis of their own.”

Conducted in the second quarter of 2021, the survey captures responses from CEOs, Chief Investment Officers, Chief Data Information Officers and other executives of asset management firms with AuM of between USD1 billion to USD750 billion and hedge fund firms with AuM of USD250 million to USD10 billion across the North America, EMEA (Europe, Middle East and Africa) and Asia-Pacific regions.