August 29, 2014
Cutter Associates, LLC, the leading provider of operations and technology expertise to the investment management industry, recently completed a study to measure the true costs of market data, beyond just license costs. As investment management firms face increasing cost pressures, the study aimed to understand how firms could successfully manage market data expenditures.
“We wanted to understand the hidden costs that are so often unaccounted for when analyzing and budgeting for market data. Our assumption is that if investment managers can expose these costs and see how significant they are, firms can better manage them,” noted Mary Storrs, Head of Cutter Associates’ Research and Benchmarking practices.
Investment firms have seen their market data costs increase, partly due to an increased diversity in the types of assets being managed, but also due to greater demands for more and increasingly complex data from both internal and external parties. With cost pressures always at the fore, firms need to understand all associated market data costs – beyond simple licensing fees.
In reality, the results of the study indicated that most firms have a very good handle on license costs. The real difficulties lay in extracting the costs associated with managing the data. The study measured the costs associated with systems, service providers, and internal resources.
When the information was analyzed, the cost of human resources was higher than the combined costs of data management systems, warehouses and external service providers such as custodians and outsourced middle and back offices. Cutter Associates found that, on average, 75% of a firm’s non-license costs for market data was attributed to the people performing market data management tasks.
“Many of these non-license costs are not accounted for when firms are managing budgets,” observed Shankar Subramanian, Head of Cutter Associates’ Data Management practice. “Determining these costs often requires careful allocation from different cost categories, and firms often underestimate these costs.” The survey found that participating firms employ an average of 15 FTEs on market data management, not including staff involved in any system or program implementations.
Said Subramanian, “We’ve seen increasing evidence that data management has become an important differentiator for firms. Defined roles such as data stewards and data owners may add to headcount costs, but in the long run these individuals combined with a centralized and well-documented data process has the potential for greater business benefits.”
Cutter Associates surveyed 17 firms for the study. Three quarters of the firms were located in North America with the remaining 25% in Europe. A summary of the survey results is available on Cutter Associates’ website.
About Cutter Associates, LLC
Cutter Associates, LLC provides truly independent investment process expertise for the investment management community. Through three interrelated services, Cutter Associates provides investment management firms the knowledge and tools to ensure that their business technologies and processes are competitive. CutterResearch offers member firms detailed, actionable research to reduce risk, lower costs and keep up-to-date on systems and operational processes. CutterBenchmarking provides bespoke reports measuring firms’ investment processes by capabilities, risk and effectiveness through comparisons based on tried and tested capability models. CutterConsulting partners with firms to evaluate, select, and implement systems and to develop leading technology and operational strategies. Cutter Associates, headquartered in Hingham, MA, has subsidiaries in Canada and the UK and can be found on the web at www.cutterassociates.com