Posts by: Patrick Campagnone

Art Director at Eagle Investment Systems.

Sovereign Investors and ESG: Appeal and Reality

Corinne Neale, Global Head of Business Applications, BNY Mellon Data and Analytics Solutions

Environmental, Social and Governance (ESG) considerations are increasingly front-of-mind for sovereign investors – including sovereign funds, central banks and public pension funds. In fact, most we have come across already consider underlying ESG issues as part of their investment decision-making processes – at least informally.

A recent discussion at BNY Mellon’s recent Sovereign Academy, however, highlighted that widespread ESG integration continues to be hindered by the ongoing confusion that stems from the lack of common industry standards and lack of consistency in ESG data. With hundreds of vendors flooding the market offering their own take at sustainability scoring, integration has become a more confusing prospect, creating a paradox of choice.

Anecdotally, most sovereign investors are in fact keen to understand and adopt ESG analysis in their investment strategies. Given their varied mandates and often longer investment horizons, ESG and impact investing can offer a compelling opportunity to put capital to work into sustainable investment strategies and markets. Singapore’s Temasek, for instance, is among those that have already established an impact fund to invest in companies supporting everything from financial inclusion and health, to smart cities and companies tackling climate change.

Still, while sovereign institutions will have a critical role in scaling up ESG investments globally, the discussions with sovereign stakeholders in recent months have surfaced no shortage of frustrations around issues that are currently hindering adoption.

Consider, for instance, the lack of consistency in ESG scores across suppliers. There are currently more than 150 vendors providing data or sustainability rankings, which lends to discrepancies and trust issues in the underlying factor data. Some vendors may reward companies for disclosure alone, whereas others focus more closely on specific metrics reflecting a corporation’s environmental and social impact. Unlike credit rating agencies, which are largely aligned in how they assess and report credit risk, the lack of a common standard to arrive at ESG scores makes it difficult for investors to contextualize the materiality of the rankings.

Another issue relates to the scale of available opportunities. While ESG as a topic continues to surge in popularity, identifying compelling opportunities remains a challenge. The latest GIIN survey, published in June, saw nearly three quarters of respondents (74%) cite the lack of high-quality investment opportunities as either a significant or moderate challenge for those seeking ESG or impact investments. This shortage of opportunities is even more pronounced for sovereign investors with assets under management that can extend to 12 figures. Read More…

Implementation’s Rosetta Stone: A Strategy for Effective Communication

Jamie Harrington, Principal and Project Executive, Global Professional Services

When implementing new systems, the progression from proof of concept to the go live date will generally move in fits and starts, at least in the early going. It’s not unlike a home renovation, in which the contractors don’t know what awaits behind the walls until demolition is underway. The same is true for technology, as vendors evaluate and untangle existing software before assembly of the new solution can begin. From there, whether or not the effort can build momentum often depends on one critical factor: consistent and transparent communication that keeps the client abreast of new developments, while the vendors are afforded the context and direction necessary to get ahead of potential issues that might otherwise stand in the way.

While facilitating transparency as part of an implementation may sound simple, it is a detailed and demanding process. The effort entails articulating common goals, maintaining open communication in pursuing the stated objectives, and requires a strong commitment from both sides of the project. Communication between clients and vendors can sometimes be more intricate and demanding than some initially realize. This is particularly the case for new relationships as each side moves along the learning curve to understand the other’s culture, processes, and protocols around regular correspondence, as well as preferences for communicating updates and milestones.

Again, it may sound easy, but the efforts required early in the relationship to build trust and credibility can significantly ease the most complex implementations. While each organization has their own preferred style of communication, we’ve found three common threads that tend to characterize some of the most successful implementations. Read More…

Credit Events: When the Effects of Weak Markets Leak into Operations

While credit derivatives provide a valued hedge during downturns, the heavy lifting involved with defaults and bankruptcies requires an automated solution.

Jawann Swislow, Instrument Engineering Analyst

During economic downturns, there are a number of consequences felt by various market participants. Individual investors may see a dip in the value of their retirement funds, while investment managers or asset owners will likely have to rebalance portfolios or consider more sweeping reallocations into vehicles or asset classes that carry less downside risk. Although derivatives investors may appear more protected through certain hedged positions, they aren’t immune either as many are affected by a lesser-known phenomenon, known as credit events.

For the uninitiated, a credit event occurs when an organization is unable to meet its financing obligations. This is most often due to a bankruptcy filing, payment default, or debt restructuring, which can trigger payments on credit derivatives linked to that organization. To fully understand credit events and their potentially sweeping implications, it’s helpful to consider the economic climate roughly a decade before the financial crisis of 2008.

The first credit default swap (CDS) was created in 1994 by Blythe Masters of JP Morgan. The instrument provided a means for investors to take a position on the credit worthiness of almost any organization in the market that carried debt. The CDS is based on a specially designated debt obligation, or a reference obligation, provided by the issuer of the financing arrangement.

In a CDS there is a protection buyer, who takes a negative (or short) view on the reference obligation’s credit worthiness, and a protection seller, who takes a positive (or long) view. The buyer pays a quarterly coupon to the seller in exchange for protection against any credit events. In the event of a default, bankruptcy, or other kind of credit event, the deal is terminated and the protection seller must pay the buyer a fee based on the size of the trade’s notional value and the amount of capital that can be recovered through a restructuring. A similar and newer derivative, the credit default index swap (CDX), tracks a basket of 100 reference obligations and trades on a factor after a credit event instead of being terminated. Read More…

Embracing Analytics: What Asset Management Firms Can Learn from Major League Baseball

Baseball has demonstrated the profound impact of analytics. Although it is a major sport in the United States, the lessons learned from its data transformation have global application. As asset managers are similarly navigating data transformation in their own industry, they are looking to close the data and technological gap – and discovering Managed Services as a solution that can help them rapidly and effectively make the shift.

Liz Blake, Global Head of Eagle Managed ServicesSM

When Michael Lewis first published Moneyball, he documented how one baseball team embraced data. Fifteen years later, this data-first mindset has spread across the league, impacting how teams invest in free agents, how the game is managed, and even how they sell tickets.

For asset managers, this is more than a curiosity. Baseball’s data transformation foreshadows the change currently reshaping the investment business. Just as advanced analytics challenged long-held assumptions and, ultimately, rewrote convention in baseball, asset management now is undergoing a similar transformation.

Model for Asset Management Firms
Incorporating a true evidenced-based, data-centric mindset into baseball’s scouting and player selection required new thinking or risking being left behind. Today, investment managers are confronting similar challenges. They’re not only rethinking what they analyze and how they generate alpha; they’re reimagining their entire operating model to treat data as a true asset. This enables them to redeploy resources – both people and capital – in new and more effective ways.

Historically, baseball managers were relegated to manual tabulations of individual data points, stored on paper and in their memories to drive decision-making. For example, great managers may know that a batter was a good hitter and was likely to get on base.  However, in order to win more baseball games, teams needed analytics to know how he got on base (he hit a curveball to shallow right field). Using this information in context, managers were able to hone game strategies, like the “shift,” in order to get the batter out, and put their team in a better position to win games. Ineffective use of resources – such as bringing in a curveball pitcher to throw to a batter who loves hitting curveballs or leaving the third baseman and shortstop in their traditional positions waiting for a ball that is rarely going to come – are not winning strategies.

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ESG Data: The Case for Transparency

Joao Sousa Dias, Sales Director

It seems there is nothing hotter in investing today than ESG. While long considered a “tick box” activity, environmental, social, and governance factors have taken centre stage in recent years amid pressure to address issues such as climate change and diversity, as well as societal changes spurred by generational transition. Among investors, though, the catalyst with the biggest impact is the mounting evidence that accounting for ESG factors can improve returns.

“Incorporating ESG analysis into the investment process can add between 50 and 100 basis points per annum to returns,”Arabesque’s Andreas Feiner quantified in an interview with Eagle, adding that it: “imparts a slight reduction in the overall risk”. The numbers support the narrative that impact investors have been making for years. Companies with high ESG standards are likely to be better run, more resilient to changes in regulation, and less susceptible to being fined or suffering reputational issues over the long-term.

That’s the good news for investors. And it helps explain gravitation to socially-responsible investment strategies, as some €19.2 trillion is committed to sustainable strategies worldwide, according to the Global Sustainable Investment Alliance. Europe leads the way in this, accounting for well over half (57%) of professionally invested funds employing sustainable strategies globally. The bad news, however, is that ESG can be a labour-intensive pursuit for firms that don’t have their “data house” in order.

According to the consulting firm Opimas,total spending on ESG data will increase by around 48% in the next two years. Asset managers and asset owners alike are looking to incorporate ESG data to drive both investment decision-making and investment analysis. Furthermore, while ESG factors have traditionally been the preserve of equities, increasingly ESG-based fixed-income indices are emerging. As a result, the demand for ESG data has never been higher and will only continue to grow.

Meeting this demand is easier said than done, however. The availability of data is scarce with vendors playing catch-up as ESG strategies multiply. To fill this void, a range of heterogeneous ESG data services have been introduced, yet standardisation—and, more importantly, standards—have yet to materialise.

This is no great surprise, since the regulatory environment is still developing and ESG measurement is still in its infancy. As Andreas Feiner points out, in the last two years regulators have introduced nearly 300 different rules focused on sustainability and corporate governance. While this is likely to improve ESG reporting—and provide greater opportunity for investment decision makers to identify metrics that deliver outperformance in the longer-term—in the short-term, it holds back standardisation.

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Becoming a Data-Driven Organisation

As investment firms turn to data to help inform and improve investment and operational decision-making, they need to take a logistical, rather than tactical, approach to data management.

Marc Rubenfeld, Head of Sales EMEA

Evidence-based management has become the new normal across businesses as organisations in every sector are looking to improve decision-making and, ultimately, the client experience. This isn’t necessarily new, but what has changed is that today they’re leveraging facts and data instead of relying purely on the gut instincts of their workforce. This has been made possible because technology has evolved to a point where the client experience can be substantially improved by utilising and combining data in new and unique ways. For example, Uber has combined lots of different types of data together to create an entirely new client experience and business model.

At a high-level, this has created a new breed of organisation: the data-driven organisation. A data-driven organisation fundamentally relies on data to conduct business and optimise the client experience. They typically display several characteristics, including a relentless focus on measuring results and continuous improvement, coupled with frictionless self-service capabilities available to clients. To achieve these characteristics, the value of data must be baked into the organisation’s DNA.

Organisations will need to become data-driven if they want to remain competitive. Like countless technological advances in the past, if your organisation does not embrace the potential of data, it will begin a painful journey to irrelevance. Imagine a business that did not embrace electricity or the telephone; this is the same prospect facing businesses that fail to embrace data today.

The investment industry is no different; firms are more focused on data than ever before as a means to rethink both the client experience and how to perform day-to-day business functions. Specifically, investment managers are undertaking transformation programmes to put data at the heart of their organisation in order to realise the benefits of being data-driven.

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Meet…Jayaram Iyer

Eagle’s newest data management engineering leader brings over two decades of experience from Amazon, Microsoft, and other leading technology companies. Jay Iyer shares what drew him to Eagle, as well as his views on opportunities for financial services companies to best leverage the cloud and the vast amounts of data available at their fingertips.

You’re joining Eagle after having worked at some of the most well known technology companies in the world. Reflecting on your background, could you discuss how your background will influence your work here at Eagle?

Most recently, I served as the Engineering Leader of Amazon’s Alexa Communications platform. I also spent time as Head of Engineering for AWS DynamoDB Storage services, and before that, led Amazon’s Listings and Catalog team. I also spent a considerable part of my career at Microsoft and served as Director of the company’s Caradigm healthcare-informatics joint venture. All of this, in different ways, will influence my work at Eagle.

My work at AWS DynamoDB, for instance, entailed helping stand up and manage a petabyte-scale, low latency, multi-tenant no-sql database in the cloud. It can handle literally millions of transactions per second, so when we talk about scalability, this is what we have in mind. But this experience with distributed systems and high-volume data processing is critical to what we’re doing at Eagle.

I think my experience around data management and data lakes will also prove valuable. At Microsoft, to name another example, we developed and brought to market the Caradigm Data Lake and Analytics platform. This is a highly scalable, fault-tolerant, big data aggregation and analytics engine. It’s integrated with the Hadoop open-source ecosystem; incorporates advanced security features such as encryption; and leverages a full-stack, read-write, apps-development platform with open REST-based APIs. So this experience is very relevant to what I’ll be working on at Eagle.And finally, the Machine Learning experience from my work on the Alexa Comms platform, most recently, and on Amazon’s Marketplace Listings Platform before that, will be critical.

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Meet…Jackie Colella

With more than two decades of experience from Wall Street and consulting, Jackie Colella shares what her new role overseeing the client experience entails and her perspective around how to define success.

You initially joined Eagle last year in a project management capacity, helping clients adopt Eagle’s V17 software release. Today, your focus is overseeing the client experience—a role that is seemingly unique from positions traditionally encountered on Wall Street or within fintech. Can you discuss the encompassing responsibilities and how you’re approaching this new role?

Working directly with clients and providing support as they adopted the V17 release early on positioned me well to fully comprehend the significance of the client experience to Eagle’s success; and then, how to help facilitate alignment between all areas of Eagle’s business and the objectives of the financial institutions we serve. Accordingly, this role—which resides within Eagle’s Office of the Client—builds on the company’s value proposition to collaborate closely with clients and create business-led solutions.

In a lot of ways, my position is comparable to that of a cruise director. I’m not sure if anyone remembers the TV series The Love Boat, but the cruise director is expected to know all of the ins and outs of the ship; they are tasked with orchestrating the staff, ensuring the right people are where they need to be; and they serve as a guide to the passengers, helping to shepherd guests accordingly so they can enjoy all that the boat has to offer. Similarly, the customer experience isn’t just managing client relationships—it’s about raising awareness of what Eagle can offer through our software, strategic alliances, and other offerings, like managed services. By knowing our clients intimately, we can proactively help them identify the optimal solution.

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Addressing the Challenges of Buy-Side Data Management in Australia

Joel Kornblum recaps his panel from Eagle’s recent Data Management & Performance Analytics event, sharing the opportunities and challenges facing the investment industry as it takes control of its data.

Joel Kornblum, Global Head of Strategic Alliances & Consultant Relations

With assets exceeding $1.9 trillion, Australia is home to the world’s fourth largest market for pension assets, according to a study published last year by Willis Towers Watson. The same study highlighted that the country has enjoyed the fastest growth rate over the past twenty years, reflecting Australia’s embrace of innovation—first, in creating the superannuation system in the early 1990s and, also, in assuming leadership positions in developing asset classes, such as infrastructure. Yet, despite the size of the market, the state of data management in Australia is still evolving and maturing. The relatively young state of data management in the country has created a major opportunity for both superannuation funds and independent asset managers to review and implement best-in-class solutions. In fact, Eagle has seen considerable interest in our continuum of solutions to support the evolving data management needs of the market. Australia not only has the opportunity to catch up to the rest of the world, but undoubtedly leapfrog other regions while embracing cloud-technology and managed services to bring new capabilities to bear.

Eagle recently sponsored a Data Management and Performance Analytics event in Sydney where I hosted a panel entitled, “Addressing the Challenges of Buy-Side Data Management,” with a special focus on the Australian market and experience. Those who participated on the panel included: Brad Farrell, Manager, Data and Analytics Solutions, Colonial First State Global Asset Management; John DiBiase, Managing Director, Shoreline Consulting; and Alexis Walker, Director, Asset Servicing Australia, BNY Mellon.

After arriving at a common definition of data management, the panelists shared their insights into various challenges that are impacting the industry’s ability to plan for, manage, and deliver timely fit-for-purpose data to meet business needs.

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Performance Measurement: Ripe for Disruption

A view on how the industry might evolve, particularly as performance professionals advocate for change.

Mark Goodey, Director & Senior Principal of Investment Analytics

The following is a summary of the article Performance Measurement: Ripe for Disruption that was published in the Fall 2018 Journal of Performance Measurement.

The thought of technological disruption in performance measurement generally makes professionals in the space a bit nervous. Rather than fearing change, however, performance teams have the opportunity to be agents of disruption and drive material advances that not only emphasize and augment the value of performance reporting internally, but also improve the customer experience for end clients. This is why the most accomplished performance professionals today are working closely with their software and solution providers to advance and evolve the function.

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