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Obsolete data puts funds on collision course

Jim Morrissey, CEO of InvestorForce, a Pennsylvania-based developer of analytical, monitoring and reporting solutions for institutional investors and their consultants, discusses why rear-view decision making is dangerous, and the need for real-time investment data.


It wasn’t long ago that institutional investors and their consultants would sit down for a quarterly investment meeting armed with a 200-page document containing 120-day-old investment data.

The historical, rear-view mirror model of reviewing performance data and risk exposure of institutional pools of
capital weeks after quarter-end is wholly inadequate given today’s challenging environment.

While the industry standard of quarterly reporting to institutional investors has been the status quo, the current market crisis highlights the necessity, and frankly, the urgency for change.

Consultants need access to real-time investment data in order to assess and act upon the overall risk exposure of the trillions of dollars in retirement, endowment and foundation assets.

These details on individual and industry holdings, liquid and illiquid investments, target and current allocations, and
overall risk exposure are critical tools in decision-making. Lack of knowledge, especially when the data is available, is not justifiable for today’s fiduciaries.

Adding to the complexity confronting decision-makers is the fact that custodians no longer house all the data about a given institutional plan. Now, with the rise in alternative investments, many of which can be illiquid, custodians may only track 50 to 70 percent of plan data.

Even as the current crisis subsides, there’s growing awareness among institutional investors – large and small – that during the most challenging periods of the past 12 months they were hampered by a lack of critical information.

For example, institutions with existing bond obligations must hold certain amounts of cash-on-hand or risk violating covenants. Access to current data is crucial to knowing if there’s sufficient cash, while out-of-date information could mean tripping the covenants protecting the institution’s bond ratings. Indeed, sponsors have come to recognise they need better visibility and the tools to assess the damage to their portfolios in real-time and make adjustments as
necessary – a sort of investment GPS system.

An investor GPS would enable institutional investors and their consultants to drive looking ahead with all the tools needed to make smart, timely decisions.

The decision-makers would have the ability to monitor significant factors, including daily exposure to financial and political markets, individual securities, sector weightings, tracking the financial health of managers and other service providers, current versus target asset mix, and cash-flow analysis. For investors interested in liability driven investing (LDI), accurate, up-to-date data is critical to matching current liabilities with plan assets.

Recent events have clearly illustrated that rear-view decision making is at best ineffective, and at worst, dangerous. The damage done to retirement funds, foundations and endowments as a result of the status quo has made real-time investment data a new imperative for consultants and their clients.

Timely data enhances the ability of institutional investors to navigate more effectively and also leads to a more collaborative process between plan sponsor, consultant and money manager. Finally, real-time data allows for real-time risk management, which should ultimately mitigate the frequency and impairment of future collisions.

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