Common Trend: Misalignment Between Investment and Reporting Functions

The data needs of businesses are growing increasingly complex, driven in large part by the overwhelming amount of data available. Data often stems from multiple sources and is funnelled into multiple silos to meet the unique needs of each business function. This system of disconnected data silos can cause misalignment as teams try to sort through what Deloitte has dubbed the “data tsunami.”

Two leaders often caught up in the eye of the storm are the Chief Investment Officer (CIO) and the Chief Financial Officer (CFO). Though their roles are inextricably linked, their data is often misaligned. Meanwhile, other roles face similar challenges due to data flowing down the pipeline. Those roles include the Chief Data Officer, Chief Risk Officer, and Chief Operating Officer.

To understand why misalignment occurs, it helps to first consider the separate goals of each function. Only by examining both roles individually can the reasons for the disconnect become clear.

CIO Functions

The CIO executes the business’s investment strategies. They rely on data to:

• Monitor performance, incorporating absolute values and asset contributions as well as relative to benchmarks
• Understand risk exposure

No matter how volatile the market, the CIO needs investment data to make informed decisions and respond to the market.

CFO Function

The CFO is focused on maintaining the accounting book of record (ABOR) and investment subledger often across multiple basis. They use data to manage:

• Monthly and quarterly close process
• Period end financial statements and disclosures
• Complex regulatory reporting

As regulations continue to increase, so too does the volume of data that the CFO is obligated to collect. Data quality is vital to ensure reports throughout the year can be delivered quickly and efficiently.

Additionally, with the rise in alternative assets, there are a wide range of data sources from which to collect, aggregate and consolidate information. Much of the data around alternatives is delivered in untraditional formats, which can require specialised systems to collect and maintain.

The Challenges of Misalignment

Each function uses a wide range of data to work toward their unique business objectives. This data can stem from many sources, including custodian data, market data, trading data, and more. With so much data to choose from, it can seem natural for each function to work independently to develop their reports.

One of the main problems with this misalignment is how it can lead to duplicated efforts by both functions to reconcile and run reports on the data. These duplicated efforts can incur unnecessary costs and lead to recurring operational inefficiencies. In fact, a recent study by Hobson & Company found that inefficient data management processes can lead to 75% more time spent on reconciliation, accounting, and reporting. This wasted time can have a substantial impact on the bottom line, as the study went on to show that streamlining accounting and reporting processes can lead to a 10 basis point increase in AUM.

As organisations seek solutions to their data challenges, they are finding themselves under growing pressure from stakeholders who demand accurate, timely data. Adding to this pressure are shifting regulatory requirements and increasingly complex portfolios, both of which contribute to the ‘data tsunami’ and misalignment.

A common temporary fix to the issue is to start involving other departments (risk, data, operations) or hire additional people. However, there are other solutions that can be more cost effective.

Ready to Learn More?

Early this year, Clearwater will host a webinar with a panel of experts to discuss these challenges, how the market affects this misalignment, and how businesses can help alleviate the problem. If you’re interested in joining the webinar, please visit here to register.