Manage the Data; Manage the European KIIDs
The European Commission's recent announcement that it wants to expand the requirement for fund managers to create simplified investor disclosure documents for all investment funds has shed a spotlight on an often overlooked area of data management -- product data management.
While financial firms have begun tackling reference and corporate action data and quickly gaining speed on counterparty data, product data management was often put on the back burner, say data management experts. The reason: it was just information marketing managers dealt with. Unlike other types of data there didn't appear to be any financial or operational risk involved with errors.
That's no longer the case. "Fund managers must now concentrate on how they manage their product data as one element of an overall data quality and governance program," says Ronan Brennan, chief technology officer for MoneyMate, following a panel talk on data governance at an investment management operations conference in New York last week. The Dublin-headquartered MoneyMate specializes in investment data management.
The OsneyMedia Buy-side North America event drew a crowd of middle and back office operations executives as well as data management experts from buy and sell-side firms who all agreed that complying with regulatory initiatives has become a pretty big stick to motivate financial firms to change antiquated decentralized policies and technology. No longer can firms rely solely on the goodwill of individual business lines to address the issue of data quality and governance. Doing so only results in inconsistent and erroneous information which hampers any calculations of enterprise wide risk and disclosure to investors and regulators.
Effective July 1, European fund managers must be prepared to send investors key investor information disclosure documents otherwise called KIIDs. Those one-to-two page documents, which replace the current simplified prospectus, are supposed to provide in plain non-legalistic language an explanation of just what the fund is all about- a basic profile and some risk factors. The legislation requiring the publication of KIIDs, coined UCITS IV, became legally effective on July 1, 2011 but grandfathering provisions have allowed countries to postpone publishing the new KIID until July 1, 2012. Ireland, Luxembourg and the UK are taking advantage of the longer timetable. UCITS IV is the third incarnation of European legislation making it easier for European investment funds to market themselves cross-border on the continent.
While fund managers do have plenty of data and product experts to provide the necessary details filling out the KIIDS has proven a bit of a challenge. "There are two issues at hand: first is collecting the data, then writing the explanatory paragraphs the way regulators want and putting the document together," says Brennan. "Some fund managers are assigning the task of overseeing the project to marketing directors who might not have sufficient expertise in compliance to pull it off." The good news: doing the legwork to publish KIIDs for UCITS-eligible funds will likely go a long way to ensuring the same document is available for other types of investment funds,” says Brennan.
Under the EC's proposal, investment funds, structured products and some insurance products will have to include the new KIID like brochure which the EC is referring to as the KIID or key investor information document. Although some product disclosures do exist comparison is difficult due to the variety of requirements between member states. Features of the future KIID are expected to be similar to those of KIIDs and are expected to include a risk and reward indicator, information about past and future performance changes and investment strategy. That's a lot of information to squeeze in a small amount of space and it is to be written by consensus -- a team of operations and product experts. That is after they have aggregated the data from front office systems, portfolio management systems, risk performance analytics systems and fund accounting administration.
Enter a legion of software firms and fund administrators -- such as SEI and Northern Trust -- only too willing to help fill some of the gaps. MoneyMate's Fund ProductMaster, which was on display at the OsneyMedia hosted event, allows fund managers to collate the necessary data and keep track of who owns each data item, what information was created, which system provided the information and who is next in line to add his or her contribution. Because data is centralized in one location, all KIID documents can be updated at one time. Structured templates maintain KIIDs for different fund types and a recent upgrade to the platform benchmarks the quality of the data to provide trend analysis and suggestions for improvement.
London-based client reporting software firm Vermilion Software, another exhibitor at the OsneyMedia event, showed the latest version of its Reporting Suite platform with improved workflows and faster report development time for KIIDs. Among the five fund managers using the platform for KIID production are Aviva Investors and BlueBay Asset Management.
It can take a legion of staffers to prepare the KIIDs. Risk and operations departments will likely ensure the risk metrics are correct but operations staffers are the ones stuck with writing the sections on investment strategy. Being brief, while accurate, can be pretty time-consuming and is proving to be the most difficult aspect of filling out the KIID. What might take up several pages in a prospectus now needs to be condensed into a third of a page and asset managers will be held liable for any statement in the KIID that is misleading or inaccurate or inconsistent with relevant parts of its prospectus. "I see some serious data management challenges particularly with the scale of the narrative data," says Brennan. "The quantitative data should be more straightforward to deal with."
In a client bulletin on KIID compliance issued last year fund management giant BlackRock says it has assembled a "multi-disciplined implementation team working full time for a number of months."
Making the need for a controlled governance process that much more important -- and costly -- is the sheer volume of documents; updates and translations which must be completed. Fund managers may have to produce KIIDs more than once a year, if there is a material change in the investment fund such as a change in investment policy or risk profile indicators. Each class of investors will likely need to receive a new KIID and KIIDs must be translated into the language of the market the investment fund is selling into. "Assuming a fund manager has two hundred funds with five share classes and markets in 10 European countries. That comes to 10,000 documents," says Simon Cornwell, director of sales and marketing for Vermilion. "Should the synthetic and risk indicator change [SRRI] over a 16 week period, KIIDs would need to be reproduced."
Cornwell says that Vermilion's Reporting Suite provides end-to-end data extraction and updates; calculations of SRRIs; translation into multiple languages; and the ultimate delivery of reports.
Written by Chris Kentouris, Editor-in-chief (Chris can be contacted through Chris.Kentouris@hotmail.com).