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The medium is the message

Investments are only as good as the information they are based on. In today’s world, there is no shortage of information and the problem has become more one of identifying the most relevant sources and integrating the information efficiently into the investment decision making process.
New technology is making it easier to select and package data more discriminatively, as well as to deliver it where and when it is needed. However, there are still some areas, such as the burgeoning hedge fund sector, where information sources are still evolving.
There are a vast number of sources of data related to investment, from research, to earnings estimates, economic indicators, benchmarks, quantitative analysis, real-time and historical prices and so on. Firms can either access these directly or use third-party services, such as FactSet Research Systems or Thomson Financial, that collate many sources into a single platform, and increasingly offer analytics and other applications that use the data. Some data vendors are most prominent in the front office, such as Bloomberg and Reuters, while others, such as FT Interactive Data, focus on the post-trade area, providing information for portfolio valuation and accounting.
“Firms are increasingly concerned not just with what data they get, but how it is delivered,” says Glenn Bedwin, director of strategy for products and workflow at New York-based financial information and applications provider Thomson Financial. “Fund managers are looking to automate and systematise their decision making processes for efficiency and to add value,” says Bedwin. So they want their data delivered automatically, in the correct format, to the right place and at the right time. And they want to be able to easily move information around their organisations and reuse it where appropriate. “Increasingly, we see content not being separate from systems within the organisation, but intimately linked,” he says.
Key to the integration and automation of information delivery and access is a new data formatting standard called eXtensible Markup Language (XML), originally created for the internet but now applied across many industries. The secret of XML is that instead of translating data into esoteric machine codes, it uses a system of standardised tags to describe the content while leaving it more or less in its original form. A computer can read the tags and know what kind of data is coming, for example if it is text or a price time series, and therefore how it should deal with it. XML makes data more accessible and able to be used by a range of computer systems and applications.
Thomson, Reuters and others are now using XML in developing their data services and applications and in helping fund managers and other clients integrate data into their work processes. Data vendors are also helping develop a number of industry- standard XML specifications tailored to financial services, such as RIXML for research, MDML for market data and XBRL for company reports.
XML is also the key to a new service that aims to allow fund managers and others to more easily collect, compare and analyse research information,both in-house and external. London-based Researchsummary has developed technology to add XML tags to conventionally produced research documents. This will allow users to automatically handle and access the information in research reports for analysis, comparison between reports and so on. “Technology initially made the delivery of data faster but did not address the content,” says John Thorne, former head of ecommerce at HSBC Securities and now chief executive officer of Research summary. “The application of XML and our software enables firms to turn research into customisable information.”
Researchsummary, which also operates a web site where a number of sell side institutions such as Credit Lyonnais and WestLB Panmure publish summaries of their research on a common platform, has four institutions which it will not name in pilot trials of its XML tagging and document navigation software. Time will tell how successful this software is in the market. Notwithstanding, Thorne believes that almost all investment banks will be using XML to publish their research by the end of the year, making it more amenable to integration and automation.
It will be some time before all other data source –prices, earnings, macroeconomic fundamentals and so on – are available as XML. In the meantime, firms are increasingly looking to outsource much of the burden of interfacing with various databases, checking their data, harmonising their updates and so on, says Scott Beyer, managing director for European operations for Connecticut-based FactSet.
“Each data source can have different update cycles, applying corporate actions at different times for example,” says Beyer. “We harmonise it all and do the integration for firms.”

Thomas Aubrey, markets group director at London-based FT Interactive Data, says that the quality of data used in investment accounting is critical. Codes for securities are often inconsistent across databases and can cause confusion and errors. IBM, for example, is listed on 12 exchanges and the code will determine which currency is used to valuate a holding. Checking and standardising the codes is one service that data vendors can offer. Another is getting timely and correct corporate actions information, especially in emerging markets where custodians rely on their agent banks – a process that tends to be slow.
FT Interactive Data is finding a growing demand for its service for representative prices in illiquid bond markets. “Funds may hold bonds that haven’t traded for two or three months and if they look on exchanges they will get prices that are out of date,” says Aubrey. His company gets information from market makers about liquid spread levels and reverse engineers cash flows using a proprietary model to calculate representative prices. “This is especially valuable where you have high yield debt, such as Enron which nobody is buying at the moment. We can provide a price for it.”
Another growing area of demand is for information on hedge funds. With new funds appearing almost by the week, keeping up to date and finding facts on funds’ strategies and performance has become an issue for investors.

London-based TASS Research, a part of global alternative investment advisory and information services provider Tremont Advisers, based in Rye, New York, maintains a database of over 2,000 hedge funds that includes information on management, investment style and sector, custodian and so on.. It also has “graveyard” data on around 1,000 funds that have gone out of business – information that the company believes investors should not ignore. The TASS database is also available from other third-parties, such as S&P Fund Services and HedgeWorld, a new US-based service that includes hedge fund news and analytics software.
Van Hedge Fund Advisors International, based in Nashville, Tennessee, has a database of around 4,000 funds, that includes information on strategies, hedge fund returns by individual managers, and performance indices by style and market sector. InvestorForce, an electronic platform for investors and consultants to conduct money manager searches online, also includes a database of hedge fund managers.
Apart from XML, the data vendors are exploring other new technologies to help them deliver their information. Thomson, for example, recently acquired a company called WorldStreet which has developed a mechanism called peer-to-peer communications for linking directly together thecomputers of information provides.
“It enables a fund manager to control precisely who they are talking to and what they receive and enables the sell side to differentiate what they are offering,” says Bedwin. Thomson is in the process of introducing the technology to its community of users.
Almost all these data vendors include analytics as part of their services. But this integration of data and applications can work both ways and now some investment management applications specialists are beginning to add data functionality. London-based DST International, for example, recently launched a data administration and validation tool called HiData. The first user is London investment firm Friends Ivory & Sime and its director of dealing and operations Glen Townsend says that the quality and timeliness of the product’s data has helped the firm improve the straight-through processing of its investment transactions.

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