A Simple guide to: family office data management
Digital
Updated on May 12, 2023Table of Contents
Most companies can agree that data analysis should be a priority, and for family offices, technology has become incredibly important, particularly for those who acknowledge the role it can play in helping them evolve and keep up with a dynamic business landscape. Family offices recognise better than most that with the rise and fall of various industries, so too does wealth creation – and wealth loss. The by-product of this fluctuation is increased risk and volatility, which is where understanding data and its relevant management comes in. Here, we investigate the types of data that are most helpful for family offices and examine how technology can, and should, act as a tool to collect and analyse data successfully.
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Sherlock Holmes once said: “It is a capital mistake to theorise before one has data”. Most companies recognise this simple truth and place a high priority on data analysis to support accurate decision-making and informed risk management. In the family office context, the importance of data has grown exponentially over the last few years- in line with a business landscape that is evolving at an ever-increasing pace. As new industries rise and established industries falter, significant wealth is being created and lost in a shorter space of time than ever before. The impact of this is higher volatility and risk. Furthermore, the growing demand for transparency and sustainable business practices places further pressure on family offices to reshape their investment and reporting approach.
The reality is that old ways of working are no longer appropriate in this new world of business which is why family offices are turning their attention towards data, exploring more sophisticated methods of leveraging it to support improved accuracy, efficiency and agility.
Technology and data go hand in hand
Although most family offices recognise the value of data, the complexity associated with tracking significant wealth across diversified portfolios, multiple legal entities and geographies make it difficult for them to access, integrate and organise data in an efficient and timely manner. This is why many firms are now embracing fam-tech to assist with the data challenge, investing in platforms that can gather, display and interpret real-time data.
The truth is, however, that even the more advanced family offices are only scratching the surface of what data can potentially deliver to their firm and clients.
In this guide, we explore various types of data that family offices can access and utilise, including opportunities outside of the traditional investment and performance spaces. We also discuss the increasingly important role of technology as a tool to collect and analyse data and how it can be leveraged to its full potential.
Why data?
If you’re already embracing the move to family office technology, you’re on the right track to successful data management. Don’t be scared of the data, it’s here to help you and make business operations that much more efficient.
Technology drives the data revolution
Immediate access to performance data has been the key driver behind a significant increase in fam-tech investment over the last few years. New technology allows family offices to replace spreadsheets and cumbersome manual processes with platforms that can gather and distil real-time data into customised performance dashboards. With live data so readily accessible, family offices can make swift, informed investment decisions and improve their management of risk. Additionally, reporting efficiency is significantly enhanced, not only in the performance space but also in other areas like impact reporting. When technology is leveraged effectively, repetitive data-capturing tasks can also be automated, freeing up time and resource towards crucial wealth management activities.
The future of data
Being able to swiftly collect and organise data is just one component of what technology can deliver. Technological advancements like AI and machine learning can potentially revolutionise the way family offices work with data. AI and machine learning take business process automation to the next level by employing algorithms to instruct tasks and enabling that algorithm to continually learn and improve. Combined, these technologies can analyze enormous amounts of data in a very short space of time, predicting trends, identifying investment opportunities, highlighting risks and making recommendations. As an example, the due diligence process for a new investment can be cut down from months to hours, which is a massive benefit to family offices.
Data is your friend
Data has always been at the heart of every good business decision and therefore has become a very valuable and essential commodity in the fast-evolving world of business. New risks and opportunities emerge quickly and modern family offices are confronted with the challenge of having to make faster and more accurate decisions whilst having to keep a much closer eye on current investments. Furthermore, the demand for greater transparency and responsible investment adds to the growing data requirements of family offices. New technology is being used effectively by many family offices as a tool to reduce the complexity and time associated with gathering and interpreting data. When used to its full potential, technology can answer questions that family offices didn’t even think of asking.
Five core types of data used by family offices
1. Wealth and performance data
It is crucial for a family office to be able to track and review the full financial position of the family. This means that valuation and performance data related to all assets, both liquid and illiquid, including alternative investments and passion assets like art and vintage vehicles, needs to be quickly accessible.
It is in this area that new family office technology plays a significant role, enabling immediate and real-time updates and providing both high-level aggregation and more detailed performance analysis of wealth allocations.
When coupled with industry data that provides insights into how other family offices are investing and includes key financial data, like cash flow requirements, it is far easier to make accurate and informed business decisions.
2. Risk data
The data received from portfolio managers will seldom provide an adequate understanding of a family’s investment risk exposure. Furthermore, most family offices do not have the capabilities or capacity to conduct the robust risk analysis necessary to properly measure and track investment risk across all asset classes.
Therefore, an external risk management advisor or internal risk management system is often employed to collate and analyze risk data associated with due diligence for new investments, monitoring of current investments and also potential credit and liquidity risks that could emerge under different economic scenarios.
Again, new technology is playing an increasingly important role in providing the necessary risk management infrastructure to family offices. Data management tools and secure data warehousing enable family offices to store market and portfolio data over time, allowing ongoing tracking of investment risks and returns. With the right data management tool, historic and current investment data can be leveraged effectively to support stress testing and scenario analysis, an essential risk-management function.
3. Impact data
Many family offices are responding to a growing trend towards responsible investment. Families, especially those with next-generation leadership, are placing a higher priority on ESG (Environmental, Social and Governance) factors as stakeholders, investors, regulators and the public demand more transparency and accountability from businesses in terms of their contribution to society and their impact on the world. For businesses across the globe, mandatory impact reporting standards are fast approaching and family offices, as major asset holders, will need to improve the monitoring and reporting of their own impact.
Many family offices are now introducing impact KPIs to measure, track and report progress. A good impact-measurement framework will clarify what kind of impact you want to achieve, the challenge it addresses, who or what benefits from your activity/investment and will set specific metrics aligned to your impact objective. In order to report the true impact and outcomes of your activity, accurate and timely data is essential. Some family offices employ manual methods to cover a few core issues while others prefer customised software solutions for automating the collection of ESG data from multiple sources including company reports and ESG data and ratings providers.
For those family offices that are not currently required to report on responsible investing, there is a good chance they will be asked to in the future and should be prepared.
4. Social media data
We live in an always-on society with people constantly interacting with each other on digital platforms such as Facebook, Twitter, YouTube, Instagram and SnapChat. This means that there is a vast amount of human-generated data sitting within these applications. This data explosion has sparked plenty of interest about the potential of Big Social Data (BSD) as a powerful and rich source of market and consumer insights. Social media management is therefore becoming an industry in itself, offering innovative solutions to support insight generation, strategic decision-making and trend prediction.
To tap into this vast ecosystem of data, one of the most interesting social media services that family offices should explore is social listening. Social listening allows you to collate information from every major social media data source and distill it into useful metrics. The benefits of social listening to a family office are broad and significant as it allows them gauge public perception and identify socioeconomic trends.
5. Benchmark data
Having insights into other family offices and how they operate can be very beneficial to other family offices looking to compare investment approaches, performance, governance, talent, cost, pricing and processes to name but a few.
Engagement with family office advisors and reviewing benchmark reports are practical ways to assess the key challenges, risks and priorities in the family office sector and may provide useful learnings and best practices. Additionally, benchmark data can support service level reporting and pricing discussions with the family.
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Further Reading
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