Navigating Data Analytics in Institutional Investments
Melanie Pickett, the head of Front Office Solutions at Northern Trust, emphasizes the challenges of providing reliable data analytics to institutional clients—particularly critical in today’s volatile market conditions.
Pickett highlights the significance of enabling clients to extract meaningful insights from their investments, whether it’s by focusing on certain sectors, regions, or increasingly, Environmental, Social, and Governance (ESG) performance. In alignment with this goal, Northern Trust recently announced enhancements to its sustainable analytics capabilities, aimed at delivering greater transparency regarding ESG risks within institutional portfolios.
The updated offerings will include “periodic snapshot analyses” of clients’ equity and bond portfolios, which will assign scores based on ESG criteria and the UN’s Global Compact principles. This tool allows investors to assess the ESG ratings of their funds both in absolute terms and relative to competing asset managers.
The data gathered can serve not only to fulfill regulatory requirements but also to facilitate strategic discussions with investment managers, ultimately helping to mitigate reputational risks associated with stakeholder concerns.
As global markets continue to experience turbulence due to the ongoing effects of the COVID-19 pandemic, Northern Trust notes that investors who grasp a company’s governance structure can better understand its resilience.
Addressing Volatility
For Northern Trust’s institutional and ultra-high-net-worth clients—which include diverse portfolios that span real estate, private equity, venture capital, and hedge funds—access to comprehensive data is essential but often lacking. Pickett observes that asset owners with substantial alternative investments frequently face gaps in data regarding the underlying exposures within those funds.
Additionally, private equity valuations are typically reported quarterly and are subject to delays of around 45 days, meaning that investors may receive information that is up to five months outdated. This lag can be particularly detrimental during volatile times, especially when market indicators—like oil or housing prices—are rapidly fluctuating.
In October 2018, Northern Trust invested in Parilux, a front-office data provider that developed a foundational model for client data management. This model enables clients to categorize their assets and risk factors in ways that resonate with their investment strategies.
Clients can examine both public and private market portfolios to evaluate their exposure across various regions or sectors. For instance, they might discover they are heavily invested in the automotive or retail sectors while underrepresented in healthcare or consumer goods.
Enhancing Operational Efficiency
Pickett also discusses Northern Trust’s efforts to integrate artificial intelligence into their data management workflows. This innovation aims to streamline processes, ensuring that data analysis remains agile and current.
“For example, if an investor is engaged with 500 private equity funds and receives results in PDF format each quarter, they must manually extract and normalize that data,” she explains. “To address this, we are investing significantly in machine learning and AI.”
These technological advancements align with a broader goal of enhancing operational efficiency, especially crucial during uncertain times. Pickett notes that organizations must optimize their limited resources, ensuring that both investment and operations teams focus primarily on leveraging data to identify risks and portfolio shifts.
Northern Trust frequently receives feedback indicating that clients are dedicating more time to managing their data than to analyzing it. “Our mission is to empower asset owners with superior technology and tools, enabling them to manage their portfolios effectively and concentrate on what truly matters for better institutional returns,” concludes Pickett.