How gatekeepers utilize data mirrors the approach investment managers take—it centers on searching and assessing. While investment managers examine growth rates, financial ratios, profitability, and balance sheets, consultants and database subscribers analyze operational data to guide their evaluation process.
Increasingly, this process occurs electronically through investment databases. Using these platforms, consultants begin with a broad universe of managers, then employ screening tools and analytics to identify a shorter list of potential candidates—similar to how managers develop watchlists and buy lists.
Initial Screening Datasets
Subscribers use numerous datasets for preliminary screening, including:
- Asset class and basic strategy
- Style Box and AUM
- Track record and geographical focus
- Benchmark and standard deviation of returns
- Alpha and Beta
- Upside/Downside capture
Investment managers should prioritize verifying these datapoints' accuracy. Regrettably, this often receives insufficient attention, creating compliance concerns.
Why Automation Matters for Compliance
A primary reason investment database data lacks reliability: firms frequently neglect proper reconciliation after publication. Resources constraints often prevent this work. Automation significantly addresses this challenge—APX Stream clients reduced data assembly, warehousing, reconciliation, and distribution time by over 90%.
Without automation, a data liaison typically spends 70 hours (nearly two weeks) manually populating databases, then another 14 days reconciling information. Additional employees reviewing data for accuracy would stretch resources further—most firms cannot sustain this level of effort.
The Compliance Problem
The SEC's recent advertising regulation enhancements target communications designed to "obtain or retain" investors. The agency aims to prevent fraudulent, deceptive, or misleading acts, practices, or courses of business. Database publications likely qualify as advertising since their purpose involves attracting clients.
Inaccurate, unreconciled data constitutes misleading information, violating these regulatory standards. Firms cannot adopt indifferent approaches to data management and distribution.
How Gatekeepers Evaluate Managers
Beyond performance metrics, consultants and gatekeepers rely extensively on narrative datasets when comparing managers with similar track records. Questions addressing investment processes, staffing changes, and strategic approaches help differentiate candidates. Narrative quality varies significantly—subscribers view this as reflecting how seriously firms treat data strategy.
Investment process descriptions range from simplistic ("Buy low, sell high") to complex explanations using industry terminology that complicates fair assessment.
Demonstrating Differentiation
Most investment firms believe their strategies are differentiated; they need effective advocates among gatekeepers making initial decisions. Database profiles provide critical access to these influencers.
After addressing quantitative concerns, database subscribers want understanding of what distinguishes a manager. Self-awareness and reflection matter significantly—acknowledgments of lessons learned and their strategic influence resonate with evaluators assessing value-added between quantitatively similar firms.
Highlighting investing team strengths and selection processes represents another crucial narrative element. Why should investors trust specific team members with capital management, particularly as passive investing gains momentum?
While managers prefer showcasing substantial long-term alpha, reality rarely supports this. Consequently, firms must emphasize narrative quality—specifically, why they merit investment trust. Investment data integrity represents the most critical consideration for database subscribers. Corrupt, inaccurate, incomplete, or unpersuasive data undermines database effectiveness as a marketing channel.
Moving Compliance Forward
Investment data integrity has traditionally remained a concealed compliance issue. Emerging SEC guidance elevates its priority significantly. As databases increase importance in due diligence, regulators will increasingly focus on data delivery and automation.
Regulators traditionally emphasize marketing, advertising, and client interactions. Misleading information violations occur readily when data lacks proper reconciliation and maintenance. The SEC's subjective approach to marketing and advertising data will likely depend on regulator interpretation of firm procedures.
Organizations should now integrate compliance and automation into investment data workflows, establishing sufficient policies and review procedures for "advertised" information.
Final Considerations
Investment firms require strengthened institutional emphasis on data reconciliation and ensuring qualitative profile elements substantiate quantitative data and vice versa. Growing industry competition rewards firms capitalizing on automation technology to streamline data assembly, warehousing, and distribution. Success requires reconciling quantitative data while refining qualitative narrative persuasiveness.