Asset owners require comprehensive oversight of their investments to manage and report on risk and return profiles. This critical reporting provides regular updates to executives, governing boards, regulators and stakeholders in a manner that is easily understood by all. As investment strategies increasingly become more complex, compounded by elevating geopolitical risks and rising reporting demands, technology can play a pivotal role in ensuring asset owners’ reporting capabilities keep pace.
Formal stakeholder reporting was introduced a few decades ago and nuances exist across the asset owner landscape. To further explore how reporting has evolved, BNY Mellon examined the internal stakeholder reporting of 50 global asset owner clients and found interesting variations in terms of asset owner type and region. These include:
While variations exist in the reporting requirements and production processes, the data requirements are consistent across asset owners. Data is mainly ex-post and combines investment accounting, performance, risk and compliance metrics. Forward looking ex-ante views are rare. The following data points are common in most reporting:
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Based on the research, there are four key challenges to stakeholder reporting. These include:
In addition, the following observations were made:
Combining these observations, asset owners could face daunting challenges when asked to deliver more frequent and digitally native reporting, when the data foundation is not aligned to support. Unsurprisingly, “Data analysis/quality tools” was flagged as the most important item by asset owners in what they consider key to helping improve their daily reporting analysis tasks (see Figure 1).
Figure 1: What are the key items for improving your daily reporting analysis tasks? (On a scale of 0 to 5, where 0 = not important and 5 = very important)
Source: BNY Mellon
In addition, asset owners revealed that “New Investment Reporting Needs” is their top reporting priority over the next three to five years. They are specifically looking for additional reporting data sources such as economic, actuarial and liquidity data, as well as graphical presentations and flexibility. “Data Exploratory Analysis Capabilities” and “Connectivity to Third-Party Business Intelligence Tools” are the other two top reporting priorities that asset owners are looking for (see Figure 2).
Figure 2: What are your top three reporting needs for the next 3-5 years?
Source: BNY Mellon
Asset owners face rising data challenges associated with content, complexity and timing. To cope with that, they are adopting new technology either directly or through their outsourced service provider across three levels:
Portfolio managers want to concentrate their efforts on portfolio construction and allocation in line with their stated mandates. They want to avoid the time-consuming tasks related to actual settlement of the executed transactions as well as prevent penalties and loss of access for certain markets.
To reduce trade settlement risk and avoid unnecessary cost, asset owners that apply an internal portfolio management strategy are increasingly interested in obtaining better oversight of their trade activity, such as the number of failed trades and a view on historical trends, investment markets and specific securities. Currently, portfolio managers can use historical trade analytics to review and investigate root causes of unsettled trades. Having the ability to predict the likelihood of a trade not settling, and highlight the probable root cause, enables the portfolio manager to take timely corrective action thus avoiding penalties, and risk of loss of access.
Leveraging patent-pending AI and machine learning technology, BNY Mellon’s Predictive Trade Analytics can provide real-time probability of trade failure, using historical trade patterns.
"Our capability provides portfolio managers with insight into top trends, such as relative market settlement fail rates and root causes of failed trades,” says Ziad Iskandar, Executive Manager of Advanced Digital Technology team at BNY Mellon. “Our tool delivers early indication of how likely each trade placed will be to settle successfully and determine probability for trade failure dynamically. For example, we can predict the probability of a trade failing to settle early enough ahead of settlement deadline, thus providing an opportunity for the client to take proactive corrective action. This is valuable in Central Securities Depositories Regulation (CSDR) markets where the cost of failure to settle is particularly punitive."
Using APIs, these early signals are reported real-time to the asset owners’ portfolio management team. Key statistics can be included in asset owners’ customized reporting, giving them oversight and the ability to take broader corrective actions, if required.
Given the need to optimize reporting using sophisticated solutions, asset owners will increasingly approach their outsourcing providers to assist in the assimilation of investment data into a single source of truth and compilation of the required reporting.
Service providers like BNY Mellon are well positioned to support asset owners in their journey, combining data vault, studio, analytical and reporting capabilities.
“Coupling our open architecture platform and data & analytics strategy, BNY Mellon is well positioned to act as the asset owners’ single source of truth”, says Rohan Singh, Global Head of Asset Owners at BNY Mellon. “We can produce the required reporting or provide data extracts to the asset owners’ reporting engine of choice to ensure that they constantly remain in control of their investments.”
Learn more by visiting BNY Mellon Asset Owner Academy, a platform to share bold ideas, insights and learnings to help asset owners stay agile as they transform their operating models.
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