Future Proofing the Front Office: Data Analytics Powered by APIs – Solving the Data Challenge
Part 2 of a 3 part series on Future-Proofing the Front Office. Want to download the full Whitepaper directly? Get it here!
The true power of the OMS & Portfolio Management software systems used on the buyside not only resides in the automation, time-savings and transparency that they provide, but also in the data that they maintain. Many industry providers are currently behind the curve with regards to the tech that they are built on and some are inhibited by their operating models and legacy system architecture.
Background of Data Analytics In Investment Management
The world has been discussing how to handle growing amounts of information for nearly 80 years. As far back as 1944, Fremont Rider, the librarian of Wesleyan University estimated that libraries were doubling in size every 16 years and questioned how to handle the information. However, it wasn’t until the 1990s that the term “Big Data” took off in scientific circles.
In the decades since, the use of data has moved beyond scientific circles into the realm of business. While many predictions from the last 20 to 30 years have come true, others, like the idea that Hadoop-based platforms would make SQL obsolete, have not.
Yet, big data is certainly shaping the investing world. Because the world produces 2.5 quintillion bytes of data every day, our industry’s conversation is no longer about big data’s existence. Instead, it’s about how we can use data analytics in investment management to make data-driven predictions and decisions. More specifically, today’s conversation primarily consists of data storage and the processing software required to analyze large amounts of data.
After all, no matter what types of data any investment firm collects, it’s only as good as the plan to manage data and the ability to leverage intelligent analytics to gain insights.
The Importance of Data Analytics in Investment Management
The need for AI-powered data analytics isn’t unique to the investment management industry. Across many different industries, companies are looking for new ways to gain competitive advantages. They primarily succeed by finding new opportunities or expanding their existing business relationships.
Data analysis has always been a way to identify these opportunities by gathering metrics that may have been overlooked in one way or another. However, as the size of the data has grown, it’s no longer possible to analyze it without leveraging emerging technology.
Companies need to have the right software tools in a big data world to stay competitive. In this respect, like many other industries, investment management firms must find a new solution to help them gain valuable insights into future opportunities that include:
- Identifying new ways of finding clients
- Identifying new market opportunities for existing clients
- Delivering improved insights to internal and external stakeholders
- Making more accurate predictions to aid decision-making
By 2025, Gartner predicts that “95% of decisions that currently use data will be at least partly automated.” The key here lies in investing in intelligent software that can deliver useful analytics. As a result, data analytics spending es expected to surpass $68 billion. To that end, it should surprise no one that data analytics in investment management is following the trend, representing one of the industry’s fastest-growing segments.
Understanding How APIs Drive Data Analytics
While we know the critical role of data analytics in investment management, understanding how to use the actual data to power data analytics solutions can be more complicated. This is where APIs come in, which are the foundation of any effective data analytics solution.
What are APIs?
APIs (Application Programming Interfaces) are not a new concept in the world of the buy side front office. Defined simply, an API is a set of definitions, communication protocols, and tools for building software. An API may be for a web-based system, an operating system, a database system, computer hardware, or a software library.
How do APIs serve buy-side wealth management firms?
With the emergence of the cloud and the internet as the way most software interactions will take place, web-based APIs become the most important type of API, with their key purpose of connecting systems and sharing data.
According to the Gartner Group, “Application programming interfaces (APIs) make digital society and digital business work. They connect people, businesses and things. They enable new digital products and business models for services and create new business channels. APIs make digital business work.”
Investment firms can analyze more complete data sets in real-time by using APIs to integrate the various systems and software. As a result, they’ll get deeper insights that drive better decisions internally for the firm and externally on behalf of their clients.
Wealth Management APIs Create a Competitive Advantage
Buyside firms are under ever-increasing pressure to modernize systems. After all, they must be able to keep up with advancing technology, an ever-changing regulatory environment, increased investor scrutiny, as well as downward fee pressures. This means that systems need to do more in terms of being able to fully analyze the data that they contain.
This is where open APIs can offer a competitive advantage by powering big data analytics for investment management firms.
APIs have numerous uses that can effectively connect mission-critical systems in a plug-and-play fashion. Some examples include portfolio modeling/optimization, risk/analytics engines, compliance, OMS trading, and back-office systems.
Without good wealth management APIs to connect systems, front-office software quickly leads to data silos. When data is siloed, the various systems cannot communicate, leading to missed opportunities, and other costly challenges that include:
- Time-consuming manual data manipulation and associated errors
- Slower reaction time due to outdated data
- Less ability to deliver total transparency to clients.
Even worse, many buy-side front-office vendors do not fully support APIs or support them in name only. For example, established vendors may provide an API for custom application development, but fail to deliver an API that connects with external systems to gather real-time data.
In some cases, it’s a business decision for vendors that don’t believe providing a comprehensive solution for investment firms is a strategic priority.
However, INDATA finds that wealth management APIs present the best opportunities for investment firms. We developed the INDATA iPM Cloud with integrated data analytics because we believe firms deserve a flexible solution that allows them to create competitive advantages, reduce costs, and more quickly deploy mission-critical information across the organization.
The Role of Data Analytics in Investment Management
It’s clear that big data analytics powered by APIs have a leading current and future role to play in wealth management. They connect all key systems and drive front-office analytics, investment decision-making, compliance, and other essential functions for investment managers.
In addition to understanding APIs, it’s critical to know that data analytics continue to shape the world of front-office software systems through the actual analytical tools themselves.
Of the tools currently available, in-memory computing (IMC) is one of the most important. It stores data in RAM rather than in databases hosted on disks and exponentially speeds up data access because RAM-stored data is available instantaneously. IMC can cache massive amounts of data, enabling swift response times and storing session data to achieve optimum performance.
Data Analytics Represents the Future of Wealth Management
In a world of cloud-based software dominating the front office, data analytics driven by APIs will become even more essential. As the amount of data investment managers produce grows, systems need to share and analyze every byte seamlessly. And, because most data is hosted in the cloud, open APIs are essential for modern data analytics in investment management firms.
Investment management firms that don’t modernize will be left behind. So the time is absolutely now to get in front of new best practices and be on the leading edge of fit-for-purpose buy-side technology.
So when buy-side firms are evaluating their OMS and Portfolio Management system providers, they really should be asking them first, “what can we do with our data with your system?”
INDATA provides cloud-native, SaaS-based solutions for OMS and Portfolio Management for leading global buy-side firms including Wealth Managers/RIAs, Fund Managers, Hedge Funds, and Institutional Investors. Solutions are delivered via INDATA’siPM Private Cloud which integrates data analytics and AI tools. Schedule a demo today to learn how we can propel your firm into the future.