Global market data spend recently exceeded $30 billion per year1. In an increasingly data-driven investment world, market data spend is only expected to rise, as firms seek out new alpha-generating data sets to enhance returns. Additionally, quantitative investment strategies have never been more in vogue with investors; the literal arms race to find better, more powerful data sets is sometimes merely just a struggle to “Keep Up with the Joneses”.
Market data is a critical component of modern fund management; however, wrangling market data expenses has never been more important due to rising costs and increasing complexity. In this article, FinServ will cover:
- Why is Market Data Expense Management Important?
- What Makes Market Data Expense Management Hard?
- What Technology Solutions are Available?
- Complementary Solutions and Services
- How FinServ Can Help
Why is Market Data Expense Management Important?
Market data is a Top 5 expense at most investment managers, but it is often the #1 headache. Although other expenses like employee compensation, real estate, and general technology spend reach similar (or greater) heights, market data expense management often lacks the same direct and consistent level of stewardship. Everyone wants to decrease market data expenses, even though they tend to be the least understood (e.g. complex contracts, metered services) and it is easy to pass the buck on ownership between technology, finance, operations, and the front-office. Strong, centralized control of the market data management process can help firms save millions by eliminating unused and underutilized services; however, even when market data has an organization’s focus, there are several inherent challenges with managing market data expenses without help.
What Makes Market Data Expense Management Hard?
Market data is incredibly costly and difficult to manage due to its complexity. Market data expense managers are tasked with providing structure to market data programs facing an ever-growing list of responsibilities and related challenges. These include managing a variety of execution-focused priorities, while also driving organizational change via strategic initiatives like optimizing data usage/flow and cutting out unnecessary costs. These activities include:
Expense Allocations & Invoice Reconciliation Controls:
- Market data allocations are usually more complex than vanilla corporate expenses. A single invoice could get allocation to some combination of individuals, groups, departments, and/or strategy (e.g. fund AUM-based allocations).
- This requires a clear understanding of the market data services and solutions currently in use, including an understanding of services purchased. How you pay matters as well; any soft dollar payments should be tightly managed along with appropriate firm compliance officers.
- Due to the volume and complexity of market data vendor invoices, the invoice reconciliation process demands a strong technological solution to facilitate daily market data expense management.
- Keeping track of actual market data usage is required to get a handle of how to cut unnecessary costs. This includes knowing which applications use specific data, how it’s licensed, and when renewals will occur.
- Market data usage and expense reports are required for the business to make informed decisions related to overall needs. This includes a mechanism to track usage and verify that it is in line with the original business objective.
- Mitigate audit exposure as a firm and remediate any compliance breaches. Understand how the firm’s contracted capabilities compare with actual data usage. Determine if licenses exist for all services utilized across the organization?
Strategic Platform Management:
- Review and implement industry best practices for market data expense management.
- Align the overall strategy with the strategic initiatives of the business and technology teams.
- How may the organization optimize market data consumption across the board to reduce costs?
- How many data vendors are currently used?
- Are any services duplicative/redundant?
- Are there any unused/underutilized services?
- Are there better platforms available for meeting corporate strategy?
What Technology Solutions are Available?
MDSL: Market Data Manager (MDM) and TRG: Financial Information Tracking System (FITS) are two of the leading market data expense management system providers in the financial services and asset management space. The overall landscape has been heavily influenced by private equity merger and acquisition activity. MDSL recently merged with Calero, a telecom expense vendor, and TRG acquired a third player in the market data expense marketplace called Screen: INFOmatch in 2019. Both MDSL and TRG aim to provide structure and clarity to manage firmwide market data, research, software and enterprise subscription spend on subscriptions to market data providers like Bloomberg, Reuters, and FactSet.
- Contract Management and Centralized Inventory: Allows organizations to track, organize, and calculate costs related to market data vendors, contracts, products, and users. Contracts and licensing inventory details may be captured to create a centralized inventory of market data assets for use in invoicing and allocation.
- Compliance Workflow: Compliance approval workflows may be leveraged to review soft and hard dollar eligible costs.
- Invoicing Workflow, Reconciliation, and Allocation: Invoice processing becomes streamlined when matching against structured inventory records. Robust organizational structures may be accommodated to allocate to departments, groups, and/or individual users.
Complementary Solutions and Services
- Managed Services: Both MDSL and TRG offer managed service offerings inclusive of contract maintenance, compliance reviews, and invoice reconciliations. If you are underwater with your current market data expense management process, consider leveraging managed services as part of an initial implementation.
- Usage Monitoring and Control Products: MDSL: Access Compliance Engine (ACE) and TRG ResearchMonitor provide access controls and usage monitoring for subscription services, allowing you to reduce spend on underutilized services and directly ensure compliance with data access contracts/agreements.
How FinServ Can Help
Managing market data expense is often a headache for investment managers, but there are several leading marketplace solutions that help relieve the burden placed on market data managers. FinServ Consulting’s industry expertise and unparalleled track record of service for asset management clients makes us the right partner to help you select the right solution for your organization.
To learn more about FinServ Consulting’s services, please contact us at firstname.lastname@example.org or (646) 603-3799.
About FinServ Consulting
FinServ Consulting is an independent experienced provider of business consulting, systems development, and integration services to alternative asset managers, global banks and their service providers. Founded in 2005, FinServ delivers customized world-class business and IT consulting services for the front, middle and back office, providing managers with optimal and first-class operating environments to support all investment styles and future asset growth. The FinServ team brings a wealth of experience from working with the largest and most complex asset management firms and global banks in the world.