“By failing to prepare, you are preparing to fail.”
– Benjamin Franklin

Crises are inevitable. We all face them. Regardless of whether they affect us as individuals, the organisations we work with and for, or society as a whole.

The ability for anyone to respond adequately to any crisis comes down to several factors, but creating the ‘space’ to think and then responding quickly and decisively to events is key. The creation of this ‘space’ is why organisations whose sole aim is to deal effectively with crises, such as the military, emergency organisations and (some) governments, devote so much effort to: one, gathering as much information as possible; two, distilling that information into digestible and communicable formats. All with the aim of reducing the potential to make poor choices by increasing time available to think and plan, and speeding up decision-making cycles.

Technology plays an increasingly important role in supporting effective crisis management across all sectors, predominantly by supporting the collection of information, and by providing the tools to turn that information into actionable intelligence.

In the world of investment management, the approach to dealing with crises is no different. We need the right information and the best tools available to give us the space to react and respond both to daily operational demands, and to unforeseen ‘crises’:

• Silicon Valley Bank has gone bust, are we exposed either directly, or via a third-party?
• Russia has prevented Ukraine grain exports, what is the likely impact on commodity prices and my portfolio?
• My CIO has been taken ill/retired how do I ensure continuity when so much knowledge is in their head?
• We are facing disagreements with stakeholders over succession-planning, generational wealth transfer planning and future investment strategies, how do I ensure we can correctly plan and communicate?

Data-First investment management.
By taking a ‘data-first’ approach to investment management, we can build the operating platform needed to support both day-to-day activities, and crisis management responses. This focuses on ‘getting the data right’ as a non-negotiable first step, before deciding which analytical tools we need to deploy against the data to answer questions as they arise.

The foundational element comprises a complete, accurate and updated record of all investments across all asset classes, geographies and sectors, regardless of custodian, investment manager or platform. This independent Investment Book of Record (IBOR) provides us with the single source of investment data truth we need to then analyse by utilising the correct set of tools to suit our specific needs.

If data is not properly collected, organised and secured, the performance of any technological ‘tool kit’ and, ultimately, the family office will be restricted. This is particularly true of investment data, where data feeds from multiple custodians, investment managers, direct investments, platforms and alternative asset classes must be considered in the round. The challenge of creating a reliable ‘single source of investment truth’ is significant. But once achieved, the consolidated data set can be exploited through reporting, investment decision-making and risk analysis tools with confidence.

Building a future-proofed investment operating platform.
The data-first approach supports the design of flexible and agile investment operating platforms. The needs of any investment manager are likely to change over time, whether suddenly in response to a crisis, or more gradually as new generations assume greater responsibilities or new activities are pursued. Changing needs must be met by changing technological capabilities, and it is rare that a single provider will meet all the needs of an investment manager in all scenarios. By establishing a data foundation, offices can create integrated modular operating platforms comprising a changing mix of technological tools from different providers over time, including the application of new technologies such as Artificial Intelligence (AI) and Machine Learning (ML).

By way of summary, if you can understand any situation clearly and accurately, you are likely to respond more effectively to that situation regardless of whether you are seizing an opportunity or mitigating a risk. Understanding comes from knowledge, and knowledge requires intelligence. In the world of investments, this intelligence is derived from data, get this right, and the rest becomes far easier.

The article first appeared in CapGen’s Practical Capital publication published in December 2023.

Read the whole article here.