investment management and the fintech revolution

Investment Management and

the Fintech Revolution

26 March 2015

2 2

Agenda

• An Introduction to State Street Global Exchange

• State Street 2014 Data Analytics Survey

– Global findings

– UK specific findings

• Conclusion

• Industry Feedback

– Shaul David, Fintech Specialist, UKTI Financial Services Organisation

– Lisa Moyle, Head of Financial Services and Payments Programmes, Tech UK

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The Market is Changing Rapidly, Driven by Unprecedented Data Volumes and Complexity, Regulatory Mandates and Technology Advancements

Globalization and

Expanding

Investment Options

Data

Proliferation

Regulatory

Challenges

Increased Importance

of Risk in Search

for Alpha

● Mounting volume of investment data across multiple systems

● Significant Growth of more complex, unstructured data and results

● Clients demand faster, more flexible access to data

● Domicile-specific regulatory regimes are driving new requirements

● Regulators are demanding increased transparency

● Increasing focus on investment policy compliance and monitoring

● Financial crisis drawdowns are leading to spotlight on risk management

● Risk / performance trade-offs are receiving fresh consideration; continued

convergence of performance and risk

● Low interest rates create dependence on riskier asset classes to generate

returns / alpha

● Technology advancement is driving more sophisticated analytics and better

transparency, new analytic approaches and new insights

● Daily and near real time performance views, security and strategy level

● Continued expansion into new asset classes and geographic regions

● Increasing asset class breadth is driving move from individual asset class to multi-asset

class tools

Technology

Advancement Enabling

New Analytic

Approaches

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How is State Street Addressing Industry Change?

Empowering Clients • To build on our strong core, we aligned State Street solutions with client

needs and continue to innovate, capture value and improve efficiency

• We’re co-developing solutions with clients that meet their most

urgent needs

• We’re investing in advanced capabilities such as patented cloud technology

Advancing a

Digital Enterprise

• We’re digitizing our core business model to deliver more solutions to our

clients through our digital enterprise initiatives (TDE)

• We’ve built on our existing programs to accelerate a transformation that

benefits employees, clients and shareholders

Realigning our

capabilities to

innovate high-

impact solutions

• We are helping to shape the investment decision making process rather

than watching from the sidelines

• To help our clients meet their challenges head on, we’re continually evolving

our business model

• We formed State Street Global ExchangeSM

in 2013 to pursue new solutions

and capabilities informed by the underlying trends shaping our business

5 5

What is State Street Doing? State Street Global Exchange

State Street Global Exchange strengthens

investment potential in our clients’ front office

through a technology-centric, operationally light

suite of data and analytics solutions.

We’re translating information from noise into action

These tools are powered by a wrapper of high IQ

earned in part through partnerships with academia,

investment strategy and an emerging data science

practice.

… and turning big data into smart data …

…to solve challenges, not sell products

We are creating an active dialogue and

incrementally experimenting on solutions with our

clients to deliver the advanced solutions they

require to solve their biggest challenges.

Leveraging data

and expertise to

deepen and

expand insights

Sharpening and

accelerating investment

decision-making

Data

Investment

Analytics

Information

& Insight

Generating and managing

unprecedented volumes,

variety, and velocity of data

6 6

State Street Global Exchange by the Numbers Scale and Expertise

*State Street and McKinsey Global Institute, Global Capital Markets 2013

Scale • A division of State Street and its $28.5 trillion* of post-trade data and insights

comprise 12 percent* of all tradable assets

• One of only 28 global systemically important financial institutions (G-SIFI)

• Strong credit rating and counterparty positioning

Expertise • Global presence of professionals with deep experience who provide solutions to

clients around the world

• Specialized research fueled by partnerships with leading academics

• A full spectrum of proprietary investor behavior, risk and inflation indicators

Trust • Focus on privacy, security and trust

• Shoulder-to-shoulder collaboration with clients

• Modular, open-architecture approach tailored to clients’ needs

• Strategic partner focus, offering clients a suite of front office-focused services

that complement our middle- and back-office capabilities

7 7

State Street 2014 Data Analytics Survey

• Conducted by Longitude Research

• Global survey of 400 senior executives at investment firms in October and

November 2014

• The survey was divided equally between asset managers and asset owners

• Respondents had to self assess their confidence and progress across six data

capabilities including infrastructure, insight, adaptability, compliance, talent and

governance

• Respondents from 11 countries

• Half of the asset management firms represented use mostly equities and fixed

income strategies

• 36% pursue highly diversified strategies, and 14% were focused on alternatives

• Of the 200 asset owner respondents, half were from insurance companies, 11% were

from pension funds and the remainder were from a variety of funds and other institutions

8 8

Importance of Investment in Data and Analytics

18%

47%

34%

2%

It is a mid-level strategic priority

It is a high strategic priority (near the top)

It is the most important strategic priority

It is a low-level strategic priority (near the bottom)

Source: State Street 2014 Data and Analytics Survey, conducted by

Longitude Research

9 9

Everyone is Investing More in Data and Analytics

Which of the following statements best describes your organization’s

investment in data and analytics capabilities in the past three years?

(% of respondents)

5%

17%

52%

21%

5%

Investment has remained flat or declinedeach year

Investment has been flat, or increased byless than 5%

Investment has increased each year bybetween 5% and 10%

Investment has increased each year bybetween 10% and 20%

Investment has increased each year bymore than 20% 78%

of investors report

growth of 5% or more in

the last three years

Source: State Street 2014 Data and Analytics Survey, conducted

by Longitude Research

10 10

Our Analysis Identifies Three Key Groups at Different Stages in the Journey to Data Dexterity

Data Starters

Companies at an

early stage in their

data journey

Data Movers

Companies actively

moving toward better

data capabilities

Data Innovators

Companies with

advanced data

infrastructure,

expertise and high-

quality data

governance

27%

36%

37%

Source: State Street 2014 Data and Analytics Survey, conducted by Longitude Research

11 11

Data

Starters

Data

Movers

Data

Innovators

Infrastructure

• Incompatible

legacy systems

• Most data in

separate silos

• Separate

platforms for

different asset

classes

• Aggregation,

visualization,

other data

management

capabilities

upgraded

• Improved data

integration across

investment

portfolio

• Infrastructure &

tools fully

upgraded

• Silos broken

down

• Seamless

integration of

unstructured data

Insight Generation

• Limited ability to

generate

performance and

risk analysis

• Fragmented view

by asset class

• Ability to conduct

scenario & stress

testing across

portfolios

• Integrated view of

risk &

performance

across multi-

asset portfolios

Adaptability

• Capabilities take

much time &

effort to adapt to

any changes in

investment

strategy

• Capabilities can

adapt quickly to

support new

products or

investment

strategies

Compliance

• Capabilities can

adapt quickly to

support new

investment

strategies

Skills

• Data team can

manage data

collection and

basic analytics

functions

Governance

• Basic data

policies and

processes in

place, but

governance is

patchy; little

standardization

• Data gaps,

errors

identified;

cleaning under

way

• Coherent,

agreed

framework for

data

governance

• Reduction in

time to market

for new product

additions, or

new asset

classes

• Systems fully

compliant with

existing

requirements,

but slow to

adapt to new

rules

• Team can

manage data

collection &

integration;

some

capabilities to

perform &

manage

analytics

• Rich, partly

integrated

performance &

risk analysis in

individual asset

classes

• Ability to analyze

performance &

risk of wide range

of alternative

assets

• Excellent data

quality and

traceability

back to source

• Reporting

systems adapt

quickly to new

requirements

across global

footprint

• Regular flow of

insights;

smooth

interaction with

fund managers

• Team has fully

optimized data

management;

advanced

Insight

generation

• Large degree of

standardization

across internal

databases;

external

providers

aligned

• Strong

leadership on

data

governance;

policies &

processes

entrenched

throughout

Our Survey Benchmarked Companies on Six Paths to Innovation

Note: Above sequencing is illustrative only; milestones may be reached simultaneously or in other sequences.

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Excellence Across These Six Areas Gives the Innovators Much Greater Confidence For the Future

Please indicate the level of confidence you have in your institution’s current data capabilities in the

following specific areas. (% respondents with very high confidence)

34%

39%

36%

31%

31%

44%

29%

17%

17%

21%

15%

11%

20%

15%

5%

4%

14%

6%

5%

4%

4%

Reducing investment costs across your asset portfolio

Evaluating risk and performance across the entire portfolio

Optimising our electronic trading strategies

Extracting investable insights from a large volume of data

Managing multiple internal and external data streams in varyingformats

Generating forward-looking insights from our data

Conducting comprehensive, accurate scenario and stress testing onour investment portfolio

Starters Movers Innovators


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Data and Analytics – Key Competitive Advantage

76% see Data and Analytics

as a key competitive

advantage

77%

76%

54%

66%

Data security is becoming a keystrategic issue in our industry

Our investment data and analyticscapabilities are a source of

competitive advantage for us

The complexity of managing our datadistracts key employees from the

areas where they should be focusingmost

Our investment data and analyticscapabilities are keeping pace with

the growth of our business

Source: State Street 2014 Data and Analytics Survey,

conducted by Longitude Research

14 14

40%

50%

9% 2%

Reporting requirements will increase, but our data capabilities will cope adequately

Reporting requirements will increase, and our data capabilities will struggle to cope

Reporting requirements will largely remain unchanged from today

Reporting requirements will ease

Many Believe They Will Struggle to Cope With More Regulation

55%

Which of the following statements best characterises your expectations for regulatory reporting

requirements over the next three years?


15 15

UK Findings


16 16

UK Findings – Significant Differences From the Global Picture

40 Respondents

from the UK

33 Work for organisations

with AUM of

$10 billion or more


17 17

Three Key Groups at Different Stages in the Journey to Data Dexterity – UK Findings

Data Starters

Companies at an

early stage in their

data journey

Data Movers

Companies actively

moving toward better

data capabilities

Data Innovators Companies with

advanced data

infrastructure,

expertise and high-

quality data

governance

30% 47% 23%


(Global = 27%) (Global = 36%) (Global = 37%)

18 18

UK Findings – Strategic Priorities

How do most senior leaders at your institution view the importance of investment data and analytics

relative to other major strategic priorities?

34%

47%

18%

48%

33%

20%

It is the most important strategic priority

It is a high strategic priority (near the top)

It is a mid-level strategic priority

UK Globally


19 19

UK Findings – Top Five Factors

Top five factors that are most likely to require changes to the way their firms manage investment data

over the next three years are:

24%

27%

29%

32%

30%

33%

33%

30%

30%

30%

Increased demand from regulators

Competitive pressure

Gowing volume of trading data

Expansion into new asset classes

Expansion into new regions

UK Globally


20 20

UK Findings – Regulatory Reporting Requirements

55% of UK respondents expect

regulatory reporting

requirements to increase over

the next three years, but they

believe their data capabilities

will cope adequately…

40% of global respondents believe

their data capabilities will cope

adequately with new

regulation


… but only

21 21

UK Findings – Competitive Advantage Keeping Pace

Our investment in

analytics and data is

keeping pace

with our business

70% of UK respondents believe

this compared to

66% of all respondents

70% of UK respondents believe

that their investment in

data and analytics is a

competitive advantage

for them compared to

66% of all respondents


22 22

26%

31%

31%

30%

28%

27%

32%

23%

19%

35%

35%

33%

33%

28%

28%

25%

23%

20%

Accessing external data

Cost of external data

Reconciling older data from multiple departments

Working with data from external providers

Standardising data formats across departments

Integrating legacy systems

Integrating unstructured data

Working with data warehouses that are too slow

Cleaning data

UK Globally

UK Findings – Integration Challenges

What are the toughest data integration challenges your company faces?


23 23

UK Findings – Data Talent

Which of the following statements best describes the skill levels of your organisation’s data and

analytic talent?

8%

14%

24%

20%

12%

8%

3%

13%

20%

20%

20%

8%

10 - Our data team has optimised datamanagement, and has advanced skills in

data analytics

9

8

7

6

5 - Our data team can manage datacollection and integration, and has somecapabilities to manage analytics functions

UK Globally

46% of global

respondents

gave

a score of

8 - 10

35% of

UK respondents

gave a score of

8 - 10


24 24

Prioritised Investment in the Next Three Years

24

42%

40%

35%

35%

39%

50%

33%

33%

38%

38%

50%

58%

Adaptability of your data systems to new needs

Analysis and visualisation of data

Data governance (e.g. clear policies, processes andleadership)

Ability of data systems to keep pace with regulatoryrequirements

Data infrastructure

Quality and availability of data talent

UK Global


25 25

Conclusion

• The UK places a much bigger priority on data infrastructure and analytics than their

counterparts elsewhere in the world

• The impact of regulation is a much bigger driving force in the UK than elsewhere

• When compared to their global counterparts, a higher percentage of UK respondents

believe their investment in analytics and data is keeping pace with their business growth,

and that this gives them a competitive advantage

• In terms of investment priorities, UK respondents are placing a bigger focus on attracting

and improving data talent and on building data infrastructure

26 26

Appendix:

State Street Global Exchange

27 27

Extending State Street’s Data Capabilities with New Sources and Types of Data

Overview Future Investments

• Extension of State Street Global Exchange

structured data model to accommodate

unstructured information

• Uses State Street’s investment in data

management technology

• Enables new analytics (e.g. sentiment

analysis)

• Investment and pilot work to provide new sentiment

based indicators and indexes

• Opportunity to align product strategy with State

Street Portfolio Solutions business (equity trading)

• ‘Light’ data aggregation capability – 3rd

parties incl. custodians, hedge funds, PE,

etc.

• Feeds analytic tools for transparency and

look-through

• Integrate truView® with DataGXSM*

• Enhance UI to provide modular access to data and

analytics

• Integrate with State Street Global Exchange risk

and attribution with back office performance to

provide full State Street Investment Analytics

solution

• Extends the capabilities of ESP

• Aggregate State Street and 3rd party data

including reference data, custodians, etc

• Self-service technology platform

• Integrated self service capabilities

• Enhanced data management

• Integration of visualization tools

• ‘High def cable’ to LABS

Portfolio

Monitor

DataGXSM*

Unstructured

Data

Aggregation

Sta

te S

tre

et G

lob

al E

xch

an

ge

* Registration is for the EU only

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Providing End-to-End Investment Analytics Solutions

Overview

• Assess overall fund liquidity and ability to meet funding liabilities and redemption requests

• Insights into the impacts of different types of liquidity events

• Custom reports are tailored to clients’ specific requirements

• Front-office targeted position-based performance reporting offering a comparison of risk v. return

• Attribution analysis based on identifiable fundamental factors, macroeconomic factors, or indexes

that serve as proxies for factors

• Integration with risk for a holistic view of risk / return

• Monitor exposures at the instrument-level and the parent-entity level

• Exposure analysis including per entity pledged collateral, OTC positions and unsettled trades

outstanding, as well as equities and issued debt

• Multi asset class enterprise risk solution based on historical VaR

• Regulatory client and internal board reporting capabilities

• Forward looking simulation capabilities for understanding return, risk, and extreme loss of

investment portfolios

• Integrated Equity, Fixed Income and Credit factor models (based upon latent factor models)

• Provides buy-side firms a measure of the trading costs in the equity, fixed income and foreign

exchange marketplaces

• Solution helps compliance officers fulfill fiduciary responsibility to satisfy best execution

Performance

Risk

Liquidity

Sta

te S

tre

et G

lob

al E

xch

an

ge

Exposure

Monitoring

Trade Cost

Analytics

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Tapping into State Street’s Competitive Information and Research Advantages

Overview

Turn-key investment models that use State Street Global Exchange’s information and

research advantages

• Private Equity Liquid Proxy

• “Best Bets” strategy

A suite of task-oriented analytics apps

• GX Risk Lab – design & test custom risk indicators

• Private Equity Portal – benchmark & evaluate private equity managers

• In development: GX Liquidity Lab, GX Currency Lab, Manager Lab, GX Portfolio Lab

Numerical series that distill information from robust, differentiated, and proprietary datasets

• State Street GX Private Equity Index

• PriceStats inflation & PPP indicators

Investment

Labs

Indices &

Indicators

Investable

Product

Models

Sta

te S

tre

et G

lob

al E

xch

an

ge

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Delivering High-Touch Advisory Solutions

Overview

• Risk Program Assessment

• Manager Assessment and Allocation Advisory

• GX Risk Labs, Liquidity Analysis, Strategic and Dynamic Asset Allocation

Decision support to help clients formulate and execute investment strategies

• Determine the appropriate asset allocation

• Research aggregation services

• Identify optimal exposure to alts/illiquid assets and evaluate & optimize external fund managers

• Development of liability, valuation and risk models

• Model validation and gap assessment services

Access to State Street Global Exchange and 3rd party research to help clients formulate and execute

investment strategies

• State Street Global Exchange research on risk management, asset allocation, liquidity modelling

and currency management

• 3rd party research through partnership arrangements leading academic institutions

• Streamline investment manager search for new ideas through academic literature.

Investment

Advisory

Research

Risk

Advisory

Sta

te S

tre

et G

lob

al E

xch

an

ge

Model

Development

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Adjust allocations, rebalance

portfolio, implement manager

changes

Construct Measure Manage Report

Model scenarios, explore

new investment strategies,

build your portfolio

Understand how your portfolio is

doing relative to your objectives

and target allocation

Create reports to track adherence

to regulatory mandates and inform

key constituents

Research

• Macro regime indicators

• Flow & behavior indicators

Investment Advisory

• Portfolio & allocation

• Strategy development

• Optimal manager allocation

• Liquidity analysis

• Currency hedging

• Enterprise risk advisory services

Strategy & Scenario Analysis

• State Street Global Exchange

Investment Labs

• Model validation

Portfolio Construction

• Opportunistic hedges / overlays

• Investable product models

Portfolio Analytics

• Returns-based portfolio & factor

analysis

• Alternative analytics

• Manager assessment

Benchmarking

• State Street Global Exchange

GX Private Equity Index / Real

Estate Index

• FX fixing rates

• State Street Universe

Risk Monitoring

• Enterprise risk solutions

• Stress & scenario testing

Regime Monitoring

• Investor Confidence Index

• Inflation indices

• Risk indices

Portfolio Management

• Performance attribution

• Re-balancing services

• Manager monitoring and

selection

Regulatory

• Money Market stress tests

• AIFMD and Form PF

• CPO-PQR

• Solvency II

Investor /Shareholder

• Performance and attribution

• Risk analysis

• Trade Cost Analysis

Boards of Directors, Management

and Compliance

• Standard reports (Best Practice)

• Custom reports

State Street Global Exchange A Deeper Dive: Integrated Client Solutions

Our Solutions Allow You to

Execute on Your Strategies • Data aggregation as an underpinning to our suite of analytics capabilities

• Differentiated research & advisory capabilities as a ‘tip of the spear’ for front

office engagement

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32

State Street Global Exchange℠ is a trademark of State Street Corporation (incorporated in Massachusetts) and is registered or has

registrations pending in multiple jurisdictions.

This information is for general, marketing and/or informational purposes only and it does not constitute investment research or

investment, legal, or tax advice, and it is not an offer or solicitation to buy or sell any product, service, or securities or any financial

instrument, and it does not constitute any binding contractual arrangement or commitment of any kind. State Street Corporation and

its subsidiaries and affiliates (“State Street”) provide products and services to professional and institutional clients, and this is not

directed at retail clients. Any opinions expressed in this document are subject to change without notice. This information has been

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This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements

are not guarantees of any future performance, and actual results or developments may differ materially from those

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independent review regarding any corresponding investment decision or related analysis. Any forecasted information in the document

is not a reliable indicator for future performance.

Copyright © 2015 State Street Corporation, All rights reserved.

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