This all comes back to data, and it is a truth universally acknowledged that a pension fund in possession of a technology solution must be in want of a good data cleanse. That data doesn’t need to be perfect, says Gubler, but it does have to be good, because it’s very difficult to make big decisions when data is poor.
GETTING IT RIGHT FIRST TIME
Unfortunately, data is often only dealt with when things come to a head, says Tom Nimmo, business analyst at Veratta.
“You should never underestimate the impact poor quality data has on funding levels,” says Nimmo, but even with a consensus between scheme, trustees and sponsor, the approach to developing systems remains somewhat 20th century.
As new data is required, instead of developing new pieces of kit, middleware is bolted into the gaps. This does nothing for generating high quality data, says Nimmo.
“There’s a reluctance to take the leap to rebuild instead of using workarounds and not dealing with the immediate data issues,” he says, and even if the data is rich, it may not be serving the schemes well.
“People want more immediate access to information to allow them to make decisions about strategy, but they don’t want it clouded by actuarial or investment jargon,” says Nimmo. “It must relate to them and their circumstances, whether it’s the scheme, the trustees or the employer.”
Consensus about data can be reached in order to reduce noise, but it still needs to be decoded unless the trustee board – or those at the sponsor – are investment specialists.
“Intelligence is the way to go,” says Nimmo. “Using a really fast automated process that gives schemes a handle on managing risks and understanding investment strategy by building reports that use plain English and are built to reflect their own scheme’s circumstances.”
THE HUMAN TOUCH
The drive by large pension funds – Calpers in the US or Railpen in the UK – for greater control or transparency has been a catalyst for the review of their investment strategy.
As plans become more sophisticated, things become more complex and they need to work harder to understand what their third party managers are doing and why. After all, says InfraHedge’s Keith, there’s no point holding a hedge fund manager who shorts a stock when you hold it long elsewhere.
The more systems you have, the less they talk to each other efficiently – it’s a fact of life – and to understand the data or the processes delivering it, you need the right talent. “Data is all very good, but information is far more important,” says Keith, echoing Nimmo’s position.
This process – to understand the data – has in fact been the catalyst driving change within the investment strategies of these large schemes.
