Financial Technology for Sovereign Wealth Funds

John Legrand, Managing Director, Head of EMEA/APAC, Eagle Investment Systems

Eagle recently attended the Superannuation Symposium in Brisbane, Australia, where our Head of Global Solutions, Marc Rubenfield, CIPM, hosted a panel on asset allocation strategies for institutional investors.

The event attracted not only pension fund managers and administrators, but also a large number of delegates from sovereign wealth funds in the Asia-Pacific region and beyond.

We find our paths are increasingly crossing with sovereign wealth funds. This may not come as a huge surprise when you consider their growing investment clout. Last year the pool of capital accounted for by sovereign wealth funds grew by more than $750 billion to reach $5.38 trillion, according to data provider Preqin, which conducts an annual analysis of the sovereign wealth fund market. This was the largest annual increase since Preqin started its report in 2008. However, the increase in AuM alone does not explain their increasing interest in our solutions and there are a number of other reasons at play. I recently wrote an article looking at some of the drivers explaining their demand for data management. You can read the full article here.

What I didn’t cover was what sovereign wealth funds are looking for from their technology provider. In our dealings with the sovereigns, we have found that their approach differs somewhat to that of the majority of our asset management clients. This is driven by two factors.

Firstly, they typically come to us with ‘less baggage’ than their counterparts in the asset management industry. Many of the asset managers we speak to are contending with legacy systems creaking under the strain of bolt-ons and siloed databases, with data governance and processes to match.  This can make the adoption of the enterprise data management solutions we offer a daunting and demanding task. Not so with the sovereigns. They typically have few, if any, historical data sources to reconcile and consolidate when implementing new solutions and have relatively small teams to manage. Secondly, sovereign wealth funds are preoccupied – obsessed even – with reliability and security. This is not to say that asset managers aren’t; of course they are, but not like the sovereigns. Sovereign wealth funds are a key component of the wealth of the nation and therefore a potential target in any political – or indeed military – conflict. As a consequence they face a different – and arguably greater – set of risks than private asset managers; such as cyber-terrorism, espionage and economic warfare.

At the same time they are answerable directly to their country’s governments and in many cases, their citizens. As such, they face a higher degree of scrutiny with the primary aim of protecting, rather than growing, the assets they manage. Any failure in their data management systems would lead to extreme scrutiny of the system procurement and due diligence process. So important is security that, despite all the NDAs and confidentiality agreements, when performing implementations we have often had to work with sample or scrambled datasets, rather than the genuine data.

For these reasons, the biggest priorities for sovereign wealth funds when looking for systems are absolute best-of-breed solutions that have the highest – preferably military levels – of security and encryption. The due diligence process is also intense and extends beyond the system itself; the provenance of their provider is a crucial factor for assessment. They want to see long-term, financially stable ownership to assure them they’ll be dealing with the same organization five or 10 years down the line.

It was clear from the conversations we were having at the Superannuation Symposium that sovereign wealth funds’ interest in financial technology is continuing to grow and it is great to be able to say that Eagle is extremely well-suited to helping meet their needs.

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