NEW YORK-Mutual funds want more specific market data, more succinctly delivered, according to a research paper released by Reuters' enterprise information division.

And it's going to be up to the data providers to figure out how to create the services and products that most effectively meet those needs, according to the London-based company's study, entitled "Mutual Funds: The Evolving Need for Market Data."

"In the stretch for new ways to make money, a mutual fund company will have to go outside of its traditional competence," said Charles H. Fiori, senior vice president and global product business owner of Reuters subsidiary DataScope Mutual Funds, during a press conference here introducing the study last week. "They're going to have to go into markets they've never been in before," he said.

When it comes to devising ways to disseminate data, and what strains will be most useful to asset managers, he said, "mutual funds are not typically going to be proactive in the pursuit of a data provider. Providers are leading the pack."

Six years ago, it was a different story. Many mutual fund companies and their boards paid close attention to the differences between data providers after the Securities and Exchange Commission issued guidance on fair value pricing in 1999. Concerns over data quality intensified with the market-timing and late-trading abuses of 2003 and 2004. But by the end of 2004, industry standards had evolved, and most companies had selected vendors and set internal policies and controls.

In fact, in a survey of 89 fund complexes both in the U.S. and in Europe, Reuters, in association with Greenwich, Conn.-based Greenwich Associates, found that while 52% had increased their consumption of market data in the past three to five years, only 22% anticipate increasing their spending on data in the next 12 months.

Once those contracts are set, and deeply entwined with each company's trading, compliance and accounting programs, most companies are unlikely to switch.

"You're typically not going to save anything by changing vendors," said Matt Nelson, a senior analyst at TowerGroup in Boston.

Even if the new provider offers its services for a lower price, the cost of changing platforms, acclimating portfolio managers and their traders and ensuring a smooth transition is onerous and costly. Completing the change can take days or even weeks for each portfolio, Nelson said.

In fact, rather than change providers, fund companies are more likely to simply add new sources, according to Fiori.

"Customers don't want to be locked in," Fiori added. To cater to that need, providers must be flexible by negotiating price on an a-la-carte basis, for example, selling information for specific products. The demand to buy more discreet information streams piecemeal is further driven by the call for both unbundling of fees for customers, as well as the call for more transparent pricing for funds themselves, according to the report.

"With service and data quality, you can overcome price," said Michele I. Kelsey, senior vice president and product business owner of Reuters' DataScope Pricing and Reference.

For providers that want to compete, that means supplying additional information such as deep historical pricing data and news bytes, as well as tools such as software services to help customers deliver the data across their various platforms, or between departments, and help in ensuring compliance with outside regulators, the Reuters report noted.

It also means delivering more finely parsed information on more complex models, including derivatives and structured products. Portfolio managers seek information that they can act upon immediately, without the need for further analysis, or that offer unique, potentially profitable, insights.

Successful data providers will also be adaptable. "Every week we hear about a new instrument, a new acronym," Kelsey said. Providers that can rapidly respond to or, better yet, anticipate such demands will prevail.

Funds will also choose the data provider that offers the best tailored, most relevant information to them, said Bob Cumberbatch, European business lines director for Interactive Data, who is based in London. "In addition to picking and choosing between instruments, they have to stay within their stated investment policies," he said. If a fund invests in U.S. equities, there is no point in buying data that includes information on European stocks, Cumberbatch continued.

Still, survey respondents said that data quality and accuracy trump portfolio managers' concerns about data, along with timeliness and completeness within the specific content set.

Weaknesses in any of those areas mean less value for data consumers-and less business for providers. "There are only so many letters of apology you will accept from a vendor," Nelson said. And in many ways, reputation is the most important marketing tool a data provider has.

Reuters' report also highlighted the differences between the ways European and U.S.-based fund companies use data. U.S. respondents said that the three top uses for third-party data include portfolio pricing, compliance and risk management.

European respondents ranked uses as pricing, then recordkeeping and back-office settlement, with risk management and compliance at the bottom of the list.

Data providers can use their experience in the U.S. to seize opportunities across the pond, Fiori said.

Whereas 67% of U.S. fund companies said that they looked to data providers for help managing regulatory requirements, only 39% of those in Europe considered satiating regulators an important function of their data providers.

That may soon change. Changes in the Undertaking For Collective Investment In Transferable Securities guidelines, known as UCITS III, will allow fund managers to broaden the scope of instruments they use in the hunt for alpha to include more complex derivatives, funds-of-funds and indices, provided portfolio managers source the pricing to the parent of that security. This change allows not only vast opportunities-70% of Europe's five trillion Euro fund industry ($6.6 trillion) are UCITS-compliant-but incredible demand for reliable, real-time and historic data, according to Cumberbatch.

Another major, and perhaps even bigger, driver will be the need for reliable data-including best-estimate NAVs-for tightly guarded hedge funds, as more and more mutual funds begin investing in their products or derivatives and as the fund industry, overall, continues to proliferate.

"You have to do it all," Kelsey said.

By Hannah Glover

NEW YORK-Mutual funds want more specific market data, more succinctly delivered, according to a research paper released by Reuters' enterprise information division.

And it's going to be up to the data providers to figure out how to create the services and products that most effectively meet those needs, according to the London-based company's study, entitled "Mutual Funds: The Evolving Need for Market Data."

"In the stretch for new ways to make money, a mutual fund company will have to go outside of its traditional competence," said Charles H. Fiori, senior vice president and global product business owner of Reuters subsidiary DataScope Mutual Funds, during a press conference here introducing the study last week. "They're going to have to go into markets they've never been in before," he said.

When it comes to devising ways to disseminate data, and what strains will be most useful to asset managers, he said, "mutual funds are not typically going to be proactive in the pursuit of a data provider. Providers are leading the pack."

Six years ago, it was a different story. Many mutual fund companies and their boards paid close attention to the differences between data providers after the Securities and Exchange Commission issued guidance on fair value pricing in 1999. Concerns over data quality intensified with the market-timing and late-trading abuses of 2003 and 2004. But by the end of 2004, industry standards had evolved, and most companies had selected vendors and set internal policies and controls.

In fact, in a survey of 89 fund complexes both in the U.S. and in Europe, Reuters, in association with Greenwich, Conn.-based Greenwich Associates, found that while 52% had increased their consumption of market data in the past three to five years, only 22% anticipate increasing their spending on data in the next 12 months.

Once those contracts are set, and deeply entwined with each company's trading, compliance and accounting programs, most companies are unlikely to switch.

"You're typically not going to save anything by changing vendors," said Matt Nelson, a senior analyst at TowerGroup in Boston.

Even if the new provider offers its services for a lower price, the cost of changing platforms, acclimating portfolio managers and their traders and ensuring a smooth transition is onerous and costly. Completing the change can take days or even weeks for each portfolio, Nelson said.

In fact, rather than change providers, fund companies are more likely to simply add new sources, according to Fiori.

"Customers don't want to be locked in," Fiori added. To cater to that need, providers must be flexible by negotiating price on an a-la-carte basis, for example, selling information for specific products. The demand to buy more discreet information streams piecemeal is further driven by the call for both unbundling of fees for customers, as well as the call for more transparent pricing for funds themselves, according to the report.

"With service and data quality, you can overcome price," said Michele I. Kelsey, senior vice president and product business owner of Reuters' DataScope Pricing and Reference.

For providers that want to compete, that means supplying additional information such as deep historical pricing data and news bytes, as well as tools such as software services to help customers deliver the data across their various platforms, or between departments, and help in ensuring compliance with outside regulators, the Reuters report noted.

It also means delivering more finely parsed information on more complex models, including derivatives and structured products. Portfolio managers seek information that they can act upon immediately, without the need for further analysis, or that offer unique, potentially profitable, insights.

Successful data providers will also be adaptable. "Every week we hear about a new instrument, a new acronym," Kelsey said. Providers that can rapidly respond to or, better yet, anticipate such demands will prevail.

Funds will also choose the data provider that offers the best tailored, most relevant information to them, said Bob Cumberbatch, European business lines director for Interactive Data, who is based in London. "In addition to picking and choosing between instruments, they have to stay within their stated investment policies," he said. If a fund invests in U.S. equities, there is no point in buying data that includes information on European stocks, Cumberbatch continued.

Still, survey respondents said that data quality and accuracy trump portfolio managers' concerns about data, along with timeliness and completeness within the specific content set.

Weaknesses in any of those areas mean less value for data consumers-and less business for providers. "There are only so many letters of apology you will accept from a vendor," Nelson said. And in many ways, reputation is the most important marketing tool a data provider has.

Reuters' report also highlighted the differences between the ways European and U.S.-based fund companies use data. U.S. respondents said that the three top uses for third-party data include portfolio pricing, compliance and risk management.

European respondents ranked uses as pricing, then recordkeeping and back-office settlement, with risk management and compliance at the bottom of the list.

Data providers can use their experience in the U.S. to seize opportunities across the pond, Fiori said.

Whereas 67% of U.S. fund companies said that they looked to data providers for help managing regulatory requirements, only 39% of those in Europe considered satiating regulators an important function of their data providers.

That may soon change. Changes in the Undertaking For Collective Investment In Transferable Securities guidelines, known as UCITS III, will allow fund managers to broaden the scope of instruments they use in the hunt for alpha to include more complex derivatives, funds-of-funds and indices, provided portfolio managers source the pricing to the parent of that security. This change allows not only vast opportunities-70% of Europe's five trillion Euro fund industry ($6.6 trillion) are UCITS-compliant-but incredible demand for reliable, real-time and historic data, according to Cumberbatch.

Another major, and perhaps even bigger, driver will be the need for reliable data-including best-estimate NAVs-for tightly guarded hedge funds, as more and more mutual funds begin investing in their products or derivatives and as the fund industry, overall, continues to proliferate.

"You have to do it all," Kelsey said.

(c) 2006 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

http://www.mmexecutive.com http://www.sourcemedia.com

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