How can an organisation with a relatively small investment team such as a family office deal with the deluge of data that can inform investment processes today?
While some family offices show great entrepreneurial spirit, to date many have been slow adopters of technology tools for efficient portfolio management. But that is changing as the sources of available information continue to mushroom, and some are even starting to set up dedicated data science teams, following the example of hedge funds like Winton Capital and Two Sigma.
In terms of data science capabilities, resource constraints mean a family office may have just a chief investment officer and a couple of analysts.
Mike Simcock, CEO of the London-based fintech group, ClearMacro, which offers a dashboard of asset allocation processes influenced by a select range of data sets, says he has encountered a particular sort of pain point with family offices. Often they can be running a range of tactical and systematic asset allocation strategies on an excel spreadsheet, Simcock says.
“They (family offices) want help to make that process more efficient and are also often searching for ways they can improve their asset evaluation and decision making,” says Simcock.
“If you are the asset owner at the family office, you are not typically the one managing the spreadsheet; you will have an analyst or CIO working for you. So there is a lot of business risk for the asset owner if that CIO or analyst leaves. There is a lot of error risk built in the process of using the spreadsheets.
“What is required is a sort of institutionalising of these strategies and frameworks, so that if the CIO or the analyst leaves, the process of asset evaluation and allocation remains straightforward and transparent within the family office on a bespoke platform.”
Simcock says there’s already an overwhelming amount of information to consider in the investment process and the big data revolution is actually compounding the problem. “If you are a CIO or a portfolio manager, not only have you got all of the traditional data sets to evaluate, you have all of these new entrants coming in from satellites, Google trends, lots of different sources, etc…
“Some of these sources are unfamiliar like CrossBorderCapital, which exploits a gap in the investment arena by focusing on public and private sources of liquidity analysis. Others cover more common ground, such as Now-Casting, which offers real-time economic signals, or EPFR Global, which looks at fund flows.” But this type of data does not come cheap - often monthly subscription prices run at around £25,000 ($31,000) and more.
“The value of data is in the eyes of the beholder,” said Simcock. “It's not really a size issue. Typically, I think the way that data sales work is that everything is up for negotiation.” With this in mind, some family offices may be in a unique position to actually monetize their own data.
London-based Neudata, which scouts new and interesting datasets, and connects data providers with hedge fund clients, has been doing some data-dealing with family offices.
Rado Lipuš, founder and CEO of Neudata, said he is currently working with a very large family office, which is linked to an operational business with interests in shipping, air freight and logistics. Freight and customs data provided the dataset is big enough, can offer investment firms with a real-time snapshot of global trade metrics.
“It's large business, which shifts a lot of world trade. So the family office decided to monitize the data,” says Lipuš. “They put a team together and they combined all the data from all the different entities into one big data centre, and then they found a way to make it compliant and make it legal.
“They had thought hard about the process; obviously they don't want to upset any of their clients and equally they don’t want to be in breach of any compliance issues.” Lipuš said the family office in question made its data available in May and signed up four hedge fund clients.
Neudata assisted with its network of funds and data providers. “We see this happening quite a lot. Initially, you can go to various funds which are very public about buying data and will have a presence at conferences and other places. But when you want to reach a wider audience it's quite hard and a lot of people think of us.”
Lipuš, who deals with many entities looking to monetize their data, said family offices were both entrepreneurial and possess a good understanding of investment processes, which most data providers do not.
“They (family offices) are often quite open-minded. They perhaps have a different perspective because they are investors as well and so they realise the importance of data,” he adds.