Where can data make an impact?
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While multiple data-related pressures are hitting Canadian firms, where is the opportunity for data management to make a real business impact? This section outlines four areas where great data enablement is driving alpha and operational beta across Canadian portfolios.
1. Convergence of public and private markets: A critical need for automating data flows
One of the most significant trends is the rapid growth of alternative and unlisted assets. Across all investment manager profiles, these assets are the fastest growing, with holdings expected to increase by up to 13% by 2028. This growth means operational beta for those who can optimize their data flows—and a performance drag for those who cannot.
Historically, private and public assets have existed in parallel worlds—held in separate fund structures, managed by separate teams, booked in separate platforms and even financed on separate ledgers. While costly to maintain, this separation allowed for differences in market practices between public and private markets (e.g. valuation frequency) and helped reduce errors.
Different asset classes have different valuation frequencies and methodologies that need transparency: conventional assets may be valued daily or intra-day, while others—like real estate and private equity—are priced quarterly or even annually. To avoid mismatches in asset allocation views or exposures, firms are having to source new data types and data management automation initiatives that can accelerate the validation of data across all investment types. These initiatives are shining new light on existing dependencies, including current manual processes. Automation will help firms remove critical timing mismatches in their asset allocation views and drive greater investment performance.
“You can’t manage risk or returns if you don’t have access to a single source of truth.”
Anunaya Ritwik
Managing Director, Data & Digital
2. Shareholder engagement: Strengthening the investment mandate
The second most problematic issue for Canada’s investment operations teams appears to be proxy votes, which 15% of respondents deem to be too error prone. And in a world where ESG investment mandates include specific requirements around shareholder engagement, this lack of efficiency risks becoming a critical weakness for investment managers.
Respondents say it takes more than 13 days to push an annual general meeting notification through to end investors, with every 20th notification getting lost. Dependent on a complex chain of transfer agents, custodians, brokers and investors, the proxy lifecycle is riddled with opaque omnibus accounts and gaps in automation that often trigger delays and errors. The end result? Asset managers getting notifications too late, failing to exercise their vote and then losing investment mandates as a result.
With retail shareholder engagement growth fuelling a 30% year-on-year increase in global voting problems, these issues are set to accelerate. Investment managers need to work with their service providers to source faster and more reliable information on proxy votes if they are to avoid losing valuable business to their more advanced competitors.
3. T+1: Data driving investment beta
As Canada and the US transitioned to T+1 settlements in 2024, the shift is about much more than the ability to settle a trade faster. With more than 80% of the previous settlement window now closed, Canadian investment managers depend on real-time trade processing—from trade execution to FX, middle office to settlements, and inventory to corporate actions.
Firms that have successfully accelerated their data flows ahead of T+1 are gaining competitive edge. They’re improving securities lending, which is reliant on real-time inventory management, and cash management by redeploying cash faster. This is helping them drive beta from both securities and cash in the portfolio.
In contrast, firms that haven’t invested in data are facing higher costs and risks. With less time to manage complex processes around securities lending, recalls and FX, fail rates have grown by up to 11% and headcount costs have increased by up to 14%, dragging down portfolio performance.
Treasurers, too, are under huge pressure to accelerate their cash and funding management to avoid costly overdrafts or short positions, both of which can further impact fund performance.
So far, T+1 has only been implemented in two major global markets. With up to 30% of Canadian investment portfolios still due to transition to T+1 (i.e. Canadian investments into securities listedin the UK, Europe and Asia–Pacific) from 2027 onward, the data pressures created by accelerated settlement will continue to grow.
4. Portfolio enhancement: The better the data, the better the returns
Up to 21% of respondents are turning to portfolio enhancement strategies (e.g. securities lending, FX hedging, overlays and cash sweeping) to get incremental returns from their investments. While these tools can contribute to overall portfolio alpha, organizations are also focused on operational alpha—driven in part by the need to neutralize the growing costs of regulatory compliance and process automation.
With more complete, end-to-end data flows, organizations are better able to make decisions defensively rather than reactively. Once data is clean, trusted and valid, organizations can begin to leverage artificial intelligence and predictive modelling to move from present tense to predictive management (of future cash flows, anomalous trade events, predictive trade fails, etc.), further extending their lead over less automated peers. One practical application is in anomaly detection.
Your partner today and tomorrow
For more than 125 years, RBC Investor Services has delivered asset servicing solutions to Canadian asset managers and asset owners, investment counsellors and other financial institutions. Part of Royal Bank of Canada, the country’s largest bank and one of the top 10 globally based on market capitalization, 1our focus is on safeguarding the assets of our clients and supporting their growth.
1Based on market capitalization as at October 31, 2024
