Data sourcing challenges: what is the best option for family offices?

Transparent, meaningful, efficient and timely reporting is central to the value proposition of family offices. Providing this kind of rich, consolidated reporting can be a challenge, however. It relies on family offices being able to source high-quality data, transform and store that data in a usable format, and enrich it with information from secondary sources.

Complicated business

• What assets and liabilities the family has.
• The valuation of those assets and liabilities at a given point in time.
• What transactions have occurred in the portfolios over a given time period.

Option 1: manual process

Currently, the most common method is a wholly manual process. With this process, an analyst or another member of the family office will access the family’s different banking portals to download the data in CSV, Excel, PDF or whatever format is available.

That work is extremely time-consuming. The data is held in a variety of portals, which have a multitude of different settings and are complex to navigate, introducing the significant risk of manual error.

For example, if one month you generate transactions from the portal based on a trade date, but the next month they are based on value date, it creates a dark period between the two months where some transactions have not been picked up in the reporting.

Data timeliness can also be problematic. Often an investment manager or bank won’t make their report available until 15 days or more after month-end – especially in the case of non-liquid alternative investments.

Sourcing data for operating companies and real assets adds a further layer of complexity. It is much harder to automate since there may be no portal available to present the information. Instead, a wide variety of people may provide the raw information about the instruments – from managers, administrators and advisors to executives at subsidiaries. Extended turnaround times are common.

Option 2: relationship managers

An alternative data sourcing option – at least for the custodied portfolios of a family office – is to obtain periodic reports from relationship managers. This is a less time-consuming and manually onerous task for the family office to perform. But there remains a significant risk of manual error and delay. The reports will usually be bank-branded PDF documents, making it painful for the family office to extract relevant information to use downstream. The family office will also need to manually consolidate the data in Excel or an equivalent application.

Option 3: automated processes

The optimal scenario for sourcing data is an automated process that uses data feeds set up with the family office’s custodian banks. Information can then be relayed via APIs, EBICS, SFTP or another protocol, depending on the counterparty. SFTP is the most common, but different protocols are favoured by different jurisdictions.

Automated data sourcing requires no manual intervention. It is also comprehensive, delivers data in a consistent format over time, and alleviates many of the security concerns around email data transfer. Automation also allows for data sourcing on a daily basis, enabling family offices to produce timelier, and more meaningful, reports. A daily process is almost impossible to sustain in a manual environment.

Of course, automation does require significant IT capabilities to set up and maintain the data feeds. These resources can either be secured in-house or by working with a third party.

Once a family office has established its process for sourcing data, the next steps are to transform and store it, as well as enrich it. Then it will be on track to providing high-quality, consolidated reporting on investment performance and risk to families.

To find out more about how family offices can overcome data management challenges, read our whitepaper below.