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The Hague rimes.com Toronto Zurich RIMES Forums 2013 Summary | www.rimes.com

Governing the ungovernable Why successful data management requires new approach

RIMES occupies a unique position at the heart of the buy-side. The day-to-day running of our mission-critical managed data services, delivered to over 250 clients, gives us a 360° view of the market. As thought leaders we also invest in a global round-table program aimed RIMES at a wider audience of market participants. This FORUMS seeks to develop best practice methods for the management of index data and benchmarks.

During 2013 we hosted 32 events in all the main global financial centers. A total of 353 industry professionals, representing over 150 buy-side firms participated. There is clearly a strong desire to develop best practice in data management and a readiness to collaborate and contribute towards that end.

In parallel, RIMES worked with Investit to produce Data Governance: The Best Practice Handbook 32EVENTS and consulted independent studies including the Deloitte study, Benchmark Data Governance: Understanding the Costs and Risks.

This report continues our 2012 thought leadership program, summarized in the RIMES paper Getting To Grips with Index Data and 353industry Benchmarks. In that report, we recommended professionals firms adopt a more systematic approach to data management and governance to bring costs under control and to avoid problems associated with an increasing volume of benchmark data that is also growing in complexity.

150buy-side firms Find out more about what we do at www.rimes.com

2 RIMES Forums 2013 Summary | www.rimes.com

Strong governance Once important, now crucial 1

The universal need for data governance was an emerging theme during 2012. Now it has taken The state of the industry center stage. The aim of strong data governance is to align index and benchmark data acquisition with business requirements while ensuring that “To be honest, people Global economic activity strengthened in the second use remains within the terms of the ruling license don’t really understand half of 2013 and the IMF projects global growth to be agreement. Without good data governance, firms what you mean when around 3.7% in 2014. There are also some cautiously become exposed to increased operational and you talk about data optimistic indications regarding world investment reputational risk and rising data management costs. governance in asset markets. However, investment management is management. It’s still likely to remain challenging. Although it may be Our last report predicted that the benchmark possible to achieve good returns, this will require data governance challenge would intensify as the quite a new topic, multi-asset, multi-strategy investing and prudent number of data sources expanded, the benchmarks and it hasn’t yet fully cost management. This in turn will require new themselves became more sophisticated, and vendor permeated all of the benchmarks from additional sources and the licensing agreements became more complex. So way down.” benchmarks themselves will inevitably continue to what actually happened in 2013? grow in complexity. Waters/RIMES Round-table delegate Feedback from our 2013 forums confirms that the is building throughout the investment data management challenge continues. Many firms “I think license management industry: struggle with data management for index data and compliance and ▶ Clients are looking for better financial returns and benchmarks, and for some, the situation is getting are more demanding. As firms pursue better returns, worse. Why? Volumes of data continue to increase governance is probably investment strategies become more complex and and so do the number of benchmark data suppliers. at the top of our diverse. This in turn requires more benchmarks, The data is increasing in complexity and vendor agenda. It’s taken very particularly customs and blends, which increases costs. license agreements become more exacting about seriously, because of ▶ Vendors are responding to client demands with data use. These industry dynamics reinforce the the potential fines and more complex products and some are adopting need for strong data governance in all firms. reputational damage." a more commercial approach to index supply. Firms must adhere to a host of complex licensing The RIMES forums suggest that many firms RIMES London forum agreements; users must be aware of licensing terms committed to improving data governance during participant and be prepared for frequent audits. 2013. ▶ are emerging as a new and growing However, a survey of 110 participants at two “The blended Regulations RIMES Data Governance Conferences in London challenge to the buy-side. Firms must comply and New York show that only 9% regard their data benchmarks will be with a growing body of complicated rules that are governance as ‘mature’. Clearly firms want to make the problem because, constantly evolving. This is a new, destabilizing progress but many projects are inchoate or stalling. at least for us, we force within the industry that creates a climate Firms know that achieving the right data operating don’t have a vendor of uncertainty as there are many contradictory model requires change but making progress is not that generates that interpretations and predictions. easy. And at a time when many firms are unable to adapt quickly, emerging regulations represent a new benchmark.” Many firms are not set up to implement change and significant data management challenge. New RIMES Frankfurt forum of such magnitude in the prospective timescale, regulations drafted by multiple international bodies participant and for some the cumulative implications of the are producing a climate of uncertainty. Firms must new regulations may come as a shock. Most firms comply with existing regulations, but must also have already cut costs and streamlined their data respond to regulations with compliance dates fixed management functions. Our forums suggest in the future, and regulations currently in draft. For that, although many data operating platforms many it will become a sink or swim situation, as the are efficient, many have reached the limit of their regulations become law. adaptability.

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The state of the data The state of the players

Attendees of the RIMES forums were very “The more sources, Investment management firms already have complex forthcoming about data management challenges amount of benchmarks, data processing requirements. Feedback suggests and changes. All firms recognize the great the more volume, and they are now being squeezed from both sides: importance of financial data and accept that index the complexity of that clients are more demanding than ever, and index data and benchmark management should be volume clearly relates vendors are becoming more commercial. Emerging addressed as a corporate governance issue. Index to resources needed to legislation intensifies these mounting pressures. data is characteristically different from other data Many firms are struggling to cope with the existing types and is more complex and difficult to manage. address it.” workload let alone plan for an uncertain future. RIMES Boston forum Forum feedback confirms that the pursuit of participant The RIMES 2013 Buy-side Survey predicted that investment returns and continuing product data governance would become a major priority diversification is generating a demand for additional “Certainly our for the buy-side. Data governance includes all the data, particularly new indexes and benchmarks. All investments are getting processes to approve the purchase of external data, of this data must be sourced, managed, stored and more complex. It's not to control and monitor how and where it is used and distributed. just stocks and bonds, to approve its decommissioning. In practical terms, but you're getting data governance is concerned with understanding As predicted in the RIMES 2013 Forums Survey, the details of who, what, why, when and how of all index data volumes and complexity have continued private equity, real index and benchmark data used within the firm, to increase. RIMES added 136 new data sources estate. You're getting overseeing the commercial use of this data. during 2013, half of which are built as custom into third-world market indexes and maintained on our private databases. – merchant markets. Feedback from our forums suggest some universal We maintain over 300 private databases on behalf I've seen some of reasons for firms to focus on data governance: of our clients, which reflects the increasing use of the blends, as you customs and blends across the industry and the mentioned, get more To manage more efficiently and to meet cost difficulty of managing the data. The supply side of management objectives the industry will continue to grow this year and firms complicated.” Many firms have pursued cost reduction programs must work hard to ensure they remain within the RIMES Montreal forum since our last report. This means that some have terms of license agreements. Most firms face rising participant limited scope to reduce external data costs further data costs as many suppliers move away from soft without damaging the business. Firms must ensure dollar arrangements. that they acquire only the data that is necessary and strong governance aligns data acquisition with On the demand side of the business, complex business requirements. Good data governance also investment strategies require an increasing number ensures that data sources are decommissioned of benchmarks and there is growing use of customs when they are no longer necessary. and blends. The proliferation of indexes and benchmarks puts unprecedented pressure on asset To ensure compliance with vendor managers, many of whom are already pursuing cost license agreements management and rationalization programs. Data vendors throughout the industry have become more commercial since last year. Firms need good data governance to ensure that data use remains within licensing agreement terms. Firms must maintain comprehensive records and be prepared to have data usage audited.

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To meet current and evolving regulatory requirements The future state A great deal of existing legislation has data of buy-side data management implications for the buy-side, including: Dodd-Frank, EMIR, Solvency II and management in 2014 AIFMD. In addition, there is a growing body of draft regulation emanating from international regulators. Feedback from our forums show the new Although there is justified optimism about the regulations to be a source of great concern as they prospects for the investment management industry, compound the existing challenges of growing data there are also grounds for concern. Even if there is volumes and complexity. Forum participants regard “We take governance uplift in global markets, firms will be torn between regulations as a disruptive force that will endure really seriously now. the competing demands of clients, data vendors for the foreseeable future. Firms must act soon, if and regulators. The need for good data governance they are not already doing so, to ensure compliance We’ve noticed it can was firmly established in our last year-end report. when the regulations are enacted. potentially save you lots and lots of money Forum feedback suggests that the need for strong Most firms agree that implementing a sound data to know exactly data governance will be even greater in the future. operating platform is the foundation of good data what you’re using.” Existing data management challenges will continue governance. Data operating models within many through 2014. Firms must pursue data management firms have already been stretched to the limit and, RIMES London forum efficiency amid budget constraints, and they must participant for many, things are getting harder. They need to comply with increasingly stringent vendor licensing find new ways of working. What can they do? “We don’t have the terms. But they also have a growing awareness that they must deal with a burgeoning body of Most firms face a difficult choice: infrastructure to regulation. ▶ Further leverage the investment made in existing support this, and we systems and try to keep up with evolving regulations have to partner.” Complying with emerging regulations will be the and changes in market practice RIMES/Waters round-table biggest operational challenge facing most firms ▶ Choose a new approach, with a specialist partner participant this year. The 2014 regulatory implementation offering a managed data service. agenda is bigger than ever and firms must respond to 300,000 pages of reform that is now Building the right data operating platform to meet in progress. Three international regulatory bodies the competing requirements of the new era is are drafting regulations that will affect index data essential but requires change. All firms must do and benchmarks: IOSCO, ESMA and the European more, but many do not have the necessary time, Commission. Regulations with data management resource or expertise to embark on significant implications include: Solvency II, Dodd-Frank, EMIR, systems development and data management Sarbanes-Oxley, MiFID, AIFMD, UCITS, III, and projects. Feedback from our forums suggests CRD IV. that emerging regulation will be the tipping point for some firms. Data crosses boundaries within The growing volume of new regulation is a major firms and cannot be managed in isolation – it has focus of attention throughout the industry and data become a strategic issue requiring perseverance and management is becoming an important determiner executive commitment. of commercial success. Successful firms will be those that achieve a holistic perspective of the Many firms recognize the escalating importance of emerging regulations. Firms need to make sense data governance and the need to develop a strategic of the necessary change to policies, contracts, data operating platform. Some are evaluating new procedures and databases. Data professionals need business models, including managed services. to prioritize, align and analyze impacts across a

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holistic set of multiple and conflicting regulations. firms struggle to take on bespoke data governance Business agility is all. programs – it is simply too difficult and too expensive. Only a few have the right tools and data Best practice data management requires a operating model. Moreover, many firms are too combination of: committed to tactical projects to tackle strategic ▶ Strong data processing, which ensures that the “Few firms provided change. They must find a new way of working that correct data is always delivered in the required form sufficient evidence to combines flexibility and control. at the right time show that data used ▶ Strong data governance, which keeps costs in their internal model Firms need to regain the ability to act quickly and down by ensuring that data is only purchased and was accurate, complete cost effectively. The first step is to build the right processed when required. and appropriate.” data operating platform. A successful strategic operating platform must offer the following: Firms cannot achieve strong data governance Solvency II Internal Model ▶ Flexibility – with sufficient agility to adapt to both without strong data processing. Many are not set Approval Process – Thematic tactical and strategic requirements comprising new Review Findings up to support rapid change and some have already business requirements, changes in legislation and reached the limits of their operating models. Our market practice forums reveal many common operational problems ▶ Transparency - to show data usage and associated with index data and benchmarks. These provenance – processes, procedures and policy are likely to worsen once the new regulations ▶ Sound data governance - that is integral and built become law. Examples include: from the ground up ▶ The procurement process often bypassed ▶ Total cost of ownership that is aligned with ▶ Changes to original use tend not be tracked or business success. reflected in adjustments to contracts ▶ Firms struggle to understand which benchmarks Working with the right partner can help firms build are used, by which funds and how used. the right data operating platform to meet the compliance requirements of new legislation as they Although the regulations are emergent and emerge. Using a managed data service allows firms disjointed, there are some common themes about to adopt a holistic approach to data management the direction of travel and the implications for data and to develop the right strategy for the governance management: of index data and benchmarks.

Firms must evidence good processes, procedures and a data policy. And they must demonstrate adherence to the regulations.

There is a need for more transparency and openness of data. Firms must be able to show where data has come from, how it has been To learn more about amended and used and where it is stored. Firms must be able to prove the quality of both internal the RIMES forums, or and external data. receive copies of RIMES There will be a greater need to retain history and research papers, email to recreate data use. This requires more than just an RIMES ; it must show data provenance and lineage. FORUMS [email protected]

Feedback from our forums suggest that many

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RIMES 2013 Forum Participants further reading Other essential white papers from RIMES

Aberdeen AM Geode Capital Management Old Mutual Global Investors Solvency II Adams Street Partners , Mayo Van, Otterloo Ontario Pension Board RIMES discusses AEGON AM Grosvenor Capital Management Ontario Teachers' Pension Plan the implications of AG2R La Mondiale Groupama AM OppenheimerFunds new regulations, giving readers an AIG Global AM Holding Guggenheim Partners AM OPTrust insight into the Handelsbanken OZ Management AllianceBernstein complexities of Allianz Global Investors Harris Associates PGGM Investments the issues. ANIMA AM Hauck & Aufhäuser AM Pictet Anthos AM Hendersons Global Investors PIMCO APG Hewitt Risk Management Pioneer Investments Ares Management Services PNC Group Ashmore Group Hotchkis and Wiley Capital PPM America Assenagon Management Prescient IM Data Governance Aviva Investors HSBC Global AM Putnam Investments Conference Banque Cantonale Vaudoise HSBC Securities Services Railways Pension Investments RIMES tackles the Banque Nationale du IDS GmbH RBC Capital Markets business case for Barclays Wealth and IM ING IM RBC Global AM data governance, Barings AM Insight Investment RBC Investor & Treasury regulatory issues, best practice and Beutel Goodman & Company Intact IM Services the market data BHF-Bank INVESCO Perpetual River and Mercantile AM management BlackRock IM Investec AM Robeco IM challenges. BlueBay AM Irish Life IM Rogge Global Partners BNP Securities Services J.P. Morgan Chase Royal London AM BNY Mellon AM J.P. Morgan Investor Services Sarasin & Partners BNY Mellon Investment Jennison Associates Schroder IM Data Governance Services John Hancock Funds Security Capital Research & Handbook Brandywine Global IM Jupiter AM Management The Best Practice Brown Brothers Harriman Kames Capital SEI Investments Handbook draws Cameron Hume Kas Bank Sentry Investments on the real-world Capital Group KBC AM Shell AM experiences of Carnegie AM Kleinwort Benson Investors SIB Portfolio Advisors RIMES clients and aims to improve CBRE Clarion Securities Kuwait Investment Office Sionna IM data management La Banque Postale AM Smith & Williamson Investment CIBC Global AM standards Citibank La Française AM Management, LTD CNP Assurances Legal & General IM Societe Generale Securities Conning & Company AM Lombard Odier Darier Hentsch Services Covea Finance M&G Investments Sprott AM CPP Investment Board MacKay Shields Sprucegrove IM Index & Benchmark Data Management: Credit Agricole Manulife Asset Management Investments 2013 Buy-side State Street Bank & Trust Danske Capital Martin IM Survey DekaBank MEAG Munich Ergo AM Company Results from Deutsche AM Mediolanum State Street Global Advisors a survey of 51 DIAM International MFS IM State Street Global Services global investment DoubleLine Capital MN Services Storebrand Kapitalforvaltning management firms East Capital AM Montreal Transit Authority Swiss & Global AM Eaton Vance Management Pension Fund T. Rowe Price Global AM Envestnet Morgan Stanley IM TCW IM F& Investments Morgan Stanley PW TIAA-CREF AM Fidelity Management & Management Timeos Research Co. Natixis Global AM UBS Global AM First Quadrant Newton IM Union Investment Fonds de Compensation NORD/LB AM Universal Investment Forca A/S IM Vanguard AM Request copies Frankfurt-Trust AM Norges Bank IM VP Bank [email protected] Franklin Templeton Northern Trust Global Advisors Global IM Investments Northern Trust Investments Western AM or download at Friends Life Investments Nuveen Investments Wilshire Associates AM www.rimes.com/insight

7 RIMES Technologies Corporation was founded in 1996 in New York specifically to meet the specialist data needs of the buy-side. The company was a pioneer provider of managed data services, using cloud-based technology to deliver highly customized financial data over the internet. Providing world-class data, supported by first-class service remains a prime focus of RIMES today. North America Asia Pacific The success of RIMES reflects a unique practical New York approach that combines the right technology with (Headquarters) 25, Place the best people. Our suite of services are designed, 84 Wooster Street 88 Phillip Street delivered, and supported by an expert team recruited New York NY 10012 Sydney, NSW 2000 from the heart of the industry. As a global company, USA RIMES serves over 250 institutions in 40 countries. +1 212 381 9000 +61 (0)2 9258 1189

RIMES offers several solutions ranging from data Boston Shanghai 101 Federal Street China Building processing to data governance. RIMES Benchmark Boston MA 02110 Suite 1411 Data Service® provides index and benchmark data USA 166 . Lujiazui Rd. in a format that is ready for use in third-party or +1 617 342 3689 Shanghai, 200120 China proprietary client applications. RIMES Reference Data +86 21 5888 6108 Service helps buy-side firms optimize data services Seattle to cut costs and boost efficiency. And RIMES Data 1700 Seventh Avenue Singapore Governance Service enables firms to monitor data use, Seattle, WA 98101 1 Raffles Quay tighten control and maintain compliance. USA Singapore 048583 +1 212 334 6866 Singapore All our solutions are fully managed and deliver more +65 6622 5930 EMEA than 600 data sources from over 100 data vendors London Email in one single, fit-for-purpose feed. We currently feed No. 1 Cornhill [email protected] data into more than 30 third-party data warehousing, London, EC3V 3ND, UK risk, performance and compliance solutions, and many +44 (0)20 7743 6040 in-house systems. We enable buy-side firms to benefit from a world-class data operating platform without a Paris major investment in people or technology. Firms that 13 avenue de l'Opéra choose RIMES can achieve more with less. 75001 Paris, +33 (0)1 78 09 70 70 RIMES has earned several industry awards over the years: the Inside Reference Data Award for Best EDM Find out more at Gerasimou Markora 3 Initiative, the Banking & Finance Award for Innovation, www.rimes.com Nicosia 1075, the Best Product Implementation at a Buy-Side firm +357 22 028 045 /what-we-do and Best Data Provider to the Buy-Side – the latter for the 7th consecutive year – at the Waters Buy-Side Technology Awards.

Banking & Finance 2011 &F ICT Innovation Award RIMES Technologies