Asset Managers and Investment Professionals have been on a rollercoaster ride the past few decades. The financial crisis of 2007 resulted in a cascade of new regulations that saddled the industry with additional oversight and cost. The COVID-19 pandemic forced a radical shift from in-office to remote working, which needed to be quickly supported by investment in new technology and resources to keep operations running from home offices. Simultaneously, they had to respond to a market downturn spawned by the crisis, keeping clients engaged. Just when things started to turn around, the war in Ukraine erupted, putting further pressure on already fragile supply chains, adding additional regulatory sanction requirements, and tipping the global economy into a potential credit crisis and recession.
Access to timely, granular data that’s reflective of on-the-ground insights, is critical in enabling confident decision making and adherence to regulations. This is particularly imperative today, as Asset Managers and Investment Professionals face a slew of changing global, market and regulatory risks. One powerful tool at their disposal to help make more accurate and confident decisions is financial ratings and scores.
Ratings and scores can be used to assess potential credit risk exposures in any economic cycle, but they are incredibly important today as credit crises loom and recessionary headwinds accelerate. It’s helpful to understand the similarities and differences between ratings and scores. They are quantitative and apply to both entities and transactions. Ratings are impartial, third-party assessments of a party's ability and willingness to meet a specific financial obligation. They reflect the creditworthiness of the associated entities, or instruments, and are calculated based on a defined methodology by an authorized organization, like our sister company, Moody’s Investors Service.
Scores are similar, but may address areas of interest beyond credit, such as exposures to aged receivables, or climate. A company’s performance against environmental, social and governance (ESG) measures can also be scored. Over the past few years, client demands for green investing products and solutions have grown tremendously, with over $6.1 trillion invested in ESG funds through 2021*. As such, Asset Managers and Investment Professionals need a means to understand which companies are performing well across ESG categories.
To accomplish this, it’s important to look for a provider that can rate each facet of ESG – environmental, social and governance – and that also provides one universal score that indicates how a company fares against these three areas combined. Consumers are becoming savvier and it’s important to rely on a third-party provider that can deliver ESG scores that are timely and trusted, so firms can choose investments that are performing in these areas, to help defend against the impression of “greenwashing” portfolios.
Having access to company financials and credit data is the foundation of investment decisions. With our expanding global marketplace, Asset Managers and Investment Professionals need access to detailed financial statements, filings and covenant data from companies around the world. Having this data standardized for global comparability is necessary to help facilitate apples-to-apples assessments.
It is important to have access to data that looks beyond the standard balance sheet and financial statements. Companies that were struggling through the pandemic now have the double-whammy of continued supply chain disruptions and their byproduct of rising inflation. With pressures on supply and inventories, understanding whether a company’s A/R balance is growing, and if they’ve defaulted in the past, or if there’s a probability they will do that in the future, is invaluable information when making investing decisions.
Ratings and scores, and financial and credit information are constructed based on backwards looking data. To complement them, it’s important to have current information to feed into trading strategies and help inform investment decisions . Receiving such information with near-zero latency can provide a timing advantage for traders. Access to news alerts that allow for personalized and precise searches across traditional news, social platforms, corporate websites and governing agencies, can complement company financial indicators to aid real-time decision making. News data can be classified and enriched in real-time with enhanced meta data making the content instantly more usable. Filters allow for easy sorting by a variety of categories, such as industry, subject, publisher, or topic, such as credit risk, market impact, sentiment, or events. These filters ensure the information you receive is specifically the information you need and will be delivered to you as it’s made available.
Third-Party Data Is Necessary To Help Steer Clear Of Compliance And Regulatory Risks
Having access to timely entity and people data aids in managing regulatory risk. This is another area where third-party data providers can help Asset Managers and Investment Professionals stay compliant with laws, regulations, and sanctions. To safeguard their investments and portfolios against doing business with any government, company, or individual on sanctions lists, firms need data that is current, accurate, and precise. Insight into ownership structures and politically exposed persons (PEPs) can help compliance and risk management professionals identify business risks, reputational risks, and regulatory risks, which helps protect both their firm and their clients.
Data Can Be Delivered And Consumed In A Manner That Best Meets Your System Requirements
Third-party data is only beneficial if it can be integrated with existing systems and mapped accurately. There are a couple ways to approach this, depending on the needs of the firm. For firms that have existing, proprietary applications in place, a third-party provider can deliver data directly through the channel of choice to a data lake, or other platform, where it can be mapped with internal data. Through a data integration process, third-party providers can attach unique and standard identifiers, like ISIN, or CUSIP codes, that can be applied to help provide a single, shared view of a record across the firm. Third -party providers can also provide solutions that marry a firm’s internal data, with the provider’s data, and then deliver that comprehensive view through off-the-shelf, or customized applications.
Considerations In Selecting A Third-Party Data Provider
When selecting a third-party data provider, a few considerations are important before you make a decision to move forward. First and foremost, does the third-party provider have a track record that’s proven and trusted? Can they provide timely, quality granular data that is not available elsewhere? Will the information they provide, like ratings and scores, help provide alternative, unbiased assessments of your investing decisions? A shared view of risk, from the front office to the back is critical to the success and solvency of your firm. Can your third-party provider help you build that view and maintain it over time? And finally does the value provided by the third-party outweigh the costs of doing business with them?
Contact us today if you’d like to learn how we can help you think through these considerations and how we can support your asset management and investment data solution needs.
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*Reference: Reuters, December 23, 2021. Analysis: How 2021 became the year of ESG investing.
