Institutional investors play multiple roles in the investment process. As portfolios have increased in complexity, investment teams face a growing set of challenges. We surveyed investors across 40 investment offices in the U.S. and UK and learned that they face issues that include strategic investment decisions, risk management, technology, security and compliance.
We recently interviewed organizations ranging in size from $300 million to upwards of $5 billion. None of the participants are current SEI clients. Read on for some fascinating findings.
The types of organizations
Which of the following best describes your organization and its invested assets?
What is the size of your organization's investable assets?
Staff sizes vary significantly across organizations
More than two thirds (67%) said they have six or fewer full-time employee dedicated to overseeing investments
How many full-time employees does your organization have dedicated to overseeing investments?
The survey respondents were mostly large organizations, but the size of their staffs varied and do not appear correlated to size:
- $5 billion or more in assets — 63% had staffs or seven or more full-time employees while the other 37% had staffs of three or fewer people.
- Between $1 billion-$5 billion in assets — Only 14% of this group had staffs of seven or more full-time employees while 57% had staffs of three or fewer people.
As portfolios have grown more complex, offices have cobbled together multiple systems and data sources over the years to solve specific challenges.
Less than one in ten (6%) of the organizations have a single source data repository including all asset types that the investment office uses for report generation
Nearly half (47%) use multiple systems for investment processing and their staffs use offline spreadsheets for some manual processes. Not surprisingly, more than three-quarters (81%) feel there is value in using financial analytics software to aggregate data and measure risk.
Organizations might not even have a formal process for managing some components of their investment infrastructure
Enhanced reporting — such as dashboards, risk analytics, regulatory and compliance oversight — was the one component identified by the most respondents (15%) as lacking a formal process.
More than a third (38%) said there are some components of the investment infrastructure for which they did not have a formal process. Of that group, the primary reasons were “no need for a formal process” or “the skill does not exist within internal resources.”
Of those without a formal process for the following components, which of the following best describes the reason?
In some instances, organizations are not actively looking for certain support because they do not believe it is available. In regards to having no formal process for investment data administration and back/middle office services, 6% said it was because “those services are not offered by external service providers."
Organizations feel there are ways to better synthesize the process and make it more efficient.
Data aggregation and automation
- Nearly half (47%) use multiple systems for investment processing and their staff uses offline spreadsheets for some manual processes.
- Not surprisingly, more than three-quarters (81%) feel there is value in using financial analytics software to aggregate data and measure risk.
Multiple accounts of record
- Nearly half (47%) said their custodians provide the data that they use in reporting and analytics.
- Nearly two-thirds (59%) believe there is risk associated with not establishing an investment book of record (IBOR) separate from the custodian.
Better access to data
- Nearly two-thirds (63%) feel that better access to the portfolio data would help in making better investment decisions.
- More than half (53%) feel there is a need in the marketplace for tools that provide more transparency into account information and data.
Institutional investment staffs agree that better use of technology to aggregate data can improve overall efficiency moving forward. Using systems to transform that data into insight, investors can reduce risks and better understand their portfolios.
This information is provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company (SEI). Investing involves risk including possible loss of principal. There can be no assurance that your investment objectives will be achieved nor that risk can be managed successfully. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Bonds and bond funds will decrease in value as interest rates rise. High yield bonds involve greater risks of default or downgrade and are more volatile than investment grade securities, due to the speculative nature of their investments.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only and should not be interpreted as legal opinion or advice.