Limina Insights

How to maximize your investment level with confidence

Produce performance with more confidence and make less mistakes by knowing the state of your data quality.

November, 2021

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As a portfolio manager, you often want to invest right up to the edge of what’s possible. Imagine for a moment: you have 1% in cash. You want to invest that cash pro-rata across your portfolio. But how much of the 1% do you dare deploy?

The decision puts a lot at stake. If you invest too much, you might become a borrower, and that could lead to heavy fines, and the need to issue a breach report to your investors. But you can’t afford to invest too little, either. If you leave cash sitting uninvested, you might be missing opportunities to create alpha.

You need to know with total certainty how much you can invest, whether it’s 99% of your cash or 99.9% of it.

To know what you look at is step one

The hypothetical investment conundrum above illustrates the importance of data quality and your ability to understand the data quality state. As such, it is critical to be able to visualise data quality, rely on your systems to inform you of the state of your data in real-time, so that you can understand if the information you're looking at is accurate enough before making an investment decision.

Data quality in an Investment Management Solutions (IMS) depends on correct calculations within - as well as on the delivery of - high quality data from multiple sources. Such sources could be custodians, brokers, index providers, valuation providers, the security master(s) and market data feeds. Some issues can be solved by the IMS, while some cannot. At least not in time. It is exactly for this reason, that visualising data quality in real-time is paramount for portfolio managers to make confident decisions.

Quality data both protects and empowers portfolio managers

With the help of real-time data quality visualisation, you can manage your funds conservatively and aggressively at the same time. The two philosophies aren’t mutually exclusive. Instead, they unite to demand precision—something portfolio managers can attain through accurate information.

When quality, real-time data is available to you, you mitigate significant operational risks. The accurate data protects your cash from overdrafts, for example. And it reduces the amount of false-negative pre-trade compliance alerts and warnings.

On the other hand, data quality visualisation also makes it possible to increase your investment level to the limits, unlocking the potential for additional returns.

With a race to the bottom in terms of fees, every basis point counts

Peak performance has never been more important, given the state of the industry. Fees have been falling by about 5% every year for the majority of asset classes and segments, according to research from Deloitte’s Casey Quirk. And a PwC report predicted fees will continue to decline through 2025.

This trend makes for fierce competition between portfolio managers, a reality that makes performance all the more important. If a portfolio manager can be more invested by even a small amount, she may see a one-basis-point increase in return, causing her performance to rise, relative to her peers. And a bump in performance, increases the chances for higher net new money.

It all comes down to the main goal—deliver outperformance.

Do you have the data quality you need?

As you consider the state of your firm's data quality and its visualisation, questions to be posed are:

  • Are you relying on the best possible data?
  • Do you know if that data has been delivered in time or not?
  • If not, are you making decisions in the blind?

As you reflect, feel free to share this article and your thoughts with your industry colleagues.

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