Northern Trust Survey: 98% Of Managers Seek To Incorporate Data Science To Optimize Investment Performance

Global Survey of 300 Investment Managers Recognizes the Value of Advanced Data Analysis in the Hunt for Alpha

Investment managers pressured by rising costs, increased transparency demands and the need to generate consistent performance are looking to harness the full potential of data in order to compete and position their firms for the future, according to a survey of 300 global asset management firms sponsored by Northern Trust.

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Northern Trust issued a white paper, The Art of Alpha: It’s All About Investment Data Science, that offers insights into how asset managers can improve investment outcomes with data strategies that better leverage technology, applying data science and behavioural analytics to processes that have historically resided on spreadsheets or other documents.

“This survey shows asset managers are aware of the need to implement a digital operating model that enables efficient and safe growth, but at the same time are rightly focused on the imperative to spend scarce capital wisely,” said Paul Fahey, head of Investment Data Science (IDS) at Northern Trust. “As evidence grows around the value of investment data science, asset managers are looking to their data to help them drive high quality outcomes so they can invest more effectively in their core activities.”

The survey, conducted for Northern Trust by WBR Insights, shows asset managers recognize the value of centralized data platforms for decision making: 98% of respondents are already using, planning to pursue or interested in incorporating data science/decision-support tools into their investment process in the next one to two years.

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However, while 57% of respondents said their data strategy includes leveraging a central platform for investment data consolidation, nearly half (48%) admitted that their organizations are still measuring the investment skill-level of their investment team by using a “qualitative measurement, which mainly relies on anecdotal evidence of proper decision-making.”

This incongruence was evident in other responses. Nearly half have a system to measure decision-making and inputs, but only 12% use a formal research management platform that is not based on spreadsheets. Only a quarter of respondents (24%) use a decision support platform to identify drivers of performance and behavioural root causes at a more granular and individualized level.

The survey data presents a view of current data science capabilities and the ambitions of global asset managers in the next two years, as well as some of their key strategic priorities:

• 66% of respondents said they currently leverage five to eight sources of investment data, with ESG data (59%) and traditional factor data (55%) prioritized but alternative, consumer and sentiment increasingly used in the search for new sources of alpha.
• 52% said their organizations are still using spreadsheets to aggregate internal and fundamental data; other data sources are accessed manually (email, PDF, etc.) and integrated to make investment decisions.
• 52% of respondents said “making their best investment ideas repeatable” was the investment process that could most benefit from data analytics.

“There is growing evidence that incorporating investment data science helps managers better meet their obligations to regulators, owners and investors,” says Gary Paulin, head of Global Strategic Solutions at Northern Trust. “Asset managers need to become more digitally conversant, not only because it will lead to improved investment outcomes, but because it’s being demanded more by their stakeholders, who are leveraging data science tools to do analysis of their own.”

Conducted in the second quarter of 2021, the survey captures responses from CEOs, Chief Investment Officers, Chief Data Information Officers and other executives of asset management firms with AuM of between US$1bn – US$750bn and hedge fund firms with AuM of US$250m – US$10bn across the North America, EMEA (Europe, Middle East and Africa) and Asia-Pacific regions.

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