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The holistic approach to transparency

With institutional investors yet to fully recover from the downturn and with banks struggling to cope with liquidity issues, a different breed of investor is making its presence felt.

With institutional investors yet to fully recover from the downturn and with banks struggling to cope with liquidity issues, a different breed of investor is making its presence felt. The sovereign wealth funds (SWFs) are returning to the market again and are making big investments. A SWF – owned directly by a sovereign government and managed independently of other state financial institutions – is mainly created to manage a country’s foreign exchange reserves. Now, government assets are brimming with foreign reserves and many SWFs are looking to make inroads into global markets.

But as much as the SWFs are looking into investment opportunities, there is a wide dispersion in the level of opacity among the funds. An October 2009 study by the IRRC Institute and RiskMetrics found that about half of the ten largest SWFs have achieved a relatively high level of disclosure, while other funds have yet to adopt meaningful initiatives to improve compliance with their self-imposed disclosure code of conduct.  

The adoption of the Santiago Principles, back in October 2008, signaled a recognition by the funds that there was a need to demystify and reassure the global capital markets through increased disclosure and transparency, yet it is clear that this has not yet been fully embraced.  

So what must be done? The attempt to aggregate and normalise the ever-increasing volume of information being generated can easily turn into a massive undertaking that is beyond the core competencies of SWFs.  As a result, they are turning to their operational outsourcing partner to provide a sophisticated data management solution that allows them to view, organise and structure their business holistically.

The key to a fully-efficient data management model involves capturing critical data generated from the front-, middle-, and back-office functions. A fully comprehensive data management process involves a three-step sequence. First, data is aggregated by pulling together internal and external data across various independent systems and products, then normalising (or validating) the data to ensure consistency, thus creating a single data set across the entire firm. Second is the data governance step, which involves normalising the internal and external data feeds to ensure the data is clean and error-free. Lastly, the presentation of the data is delivered back to authorised parties in a meaningful context through a variety of methods. Whilst aggregation and governance are standard practice, the presentation of the data is often an afterthought, but it can exponentially enhance or detract from the first two steps.  

Working with a single provider that can administer the SWFs’ full array of investment products provides a more integrated operating environment. This in turn helps ensure consistency and standardisation, streamlines communications, and means they can more easily obtain a holistic and accurate snapshot across their business.  Reporting needs to capture both high-level trends in a dashboard view (i.e. 24/7), but also provide the flexibility to drill down and slice data in multiple ways.

The complexity of new financial products, increasingly stringent regulatory controls, and the costs associated with managing data in-house will continue to drive the trend amongst SWFs to enhance their data management capabilities so that they can respond quickly to challenges. 

This material represents an assessment of the market environment at a specific point in time and should not be relied upon by the reader as research or investment advice. This information is for educational purposes only. SEI claims no responsibility for the accuracy or reliability of the data provided.

 By David Morrissey, director of new business development, Europe and the Middle East, for SEI’s investment manager services division


Click here to download the Hedgeweek Middle East Special Report 2009

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