Today’s asset management businesses typically operate numerous investment portfolios, with front-office managers executing trades across multiple markets globally. Scaling a business with disparate executions across portfolios can be tricky.
Executing transactions in non-standardized private markets adds an additional level of complexity to this already fraught picture. Asset managers in these markets work across multiple third-party administrators (TPAs) and often have different systems to manage their various strategies. Traditional firms are not off the hook - with the rise of hybrid fund structures to furnish traditional investors with alternatives-type returns profiles, few firms can avoid the challenges of alternatives executions management.
The good news is that whether you’re a major integrated asset manager trying to make sense of disparate executions across portfolios, or an alternatives boutique manager looking to develop a rational operations model, you can modernize executions to scale your business.
We have experienced that such an evolution happens in three streams, by:
1. Digitizing interactions, building interoperability and creating transparency between stakeholders using workflow tools
Digitization is essential in today’s remote working environment as managers grapple with completing due diligence checks remotely. In the high value private markets, where managers fiercely compete to gather the best assets, they face increasing pressure to complete the due diligence process quickly while continuing to operate within their risk and compliance framework.
The use of digital libraries for document review gives managers the flexibility to undertake due diligence on potential investments across various functional groups such as portfolio lead, compliance and legal. These libraries are also helpful when due diligence is outsourced to third party specialists or consultants, enabling the relevant parties to share the same set of documents.
Workflow tools are an integral part of the digital tool kit and could transform private markets investing by streamlining processes across the front, middle and back offices. They digitize interactions between parties, bringing a level of straight through processing normally associated with liquid public markets, creating the transparency managers need to gain comfort with the end-to-end process of a deal closing.
For example, a single digital execution instruction for a private debt instrument generates the associated cash movement down the fund structure, as well as the loan forecast model for the life of the instrument and triggers the subsequent loan and interest accrual transactions in the accounting records of the fund. This level of digitization requires a set of technology tools that support the flow of open architecture data between various systems both internal and external; from the front office systems used by the manager to the accounting systems used by a third-party administrator.
2. Capturing data, aggregating and augmenting it to enable self-servicing
Having to make a decision from a plethora of tools and fintech providers which can best support open architecture data flows between multiple systems and platforms, is no mean feat. But, as with many issues, the best place to start is by self-examination.
Managers face the complex task of streamlining across multiple silos and different private market strategies and teams, with the multiple legacy systems that evolve in these teams. While understanding the rationale of Chinese walls or functionalization of certain key functions, using data more efficiently and fluidly can go a long way in managing operational overheads as managers continue to see fee compressions.
To add to the complexity, many managers are looking to widen the accessibility of private market assets to retail investors via new structures such as the European long term investment fund (ELTIF), the proposed long term asset fund (LTAF) as well as an increasing number of evergreen private market funds. These hybrid funds require a blending of private and public market functions and teams which can be challenging.
This complexity heightens the need for tools that support data aggregation at a level never seen before, blending investor data from distributors or trading platforms with investment data held in systems historically used for closed ended private markets funds.
Augmenting data at will
As strategies and teams blend and merge, there is an increasing need to support core data sets that are capable of being augmented almost at will, with reporting or dashboarding tools that can also flex quickly. Self-service requests are also starting to appear from limited partners (LPs), who are looking for more transparent reporting to support their regulatory reporting requirements.
Managing investor reporting demand can be a conundrum for managers who use multiple service providers to service their fund structures, as they attempt to consolidate multiple data sets. While established asset manager shops prefer to receive data feeds that they can consolidate and present internally in their own reporting environment, for a start-up or a small manager there is a greater reliance on data tools provided by their service providers.
For this reason, technology is an important factor for selecting a fund administrator or transfer agent. In addition to providing a digital portal for investors to access fund reporting, increasingly managers are also looking for a portal access which would provide transparency into fund activity, the ability to review and approve transactions, as well as the ability to review and extract investor and accounting data that can feed into their front office systems.
Another key differentiator when selecting a service provider is the ability to provide a single platform that can aggregate data from multiple TPAs.
3. Easing data usage with customizable apps, enabling stakeholders to focus on value
In the race to present data sets in a quality-controlled environment, and with an ever-increasing number of consumers of data, ease of use plays a key role. For an asset manager, data demands can arise from not just the external clients or investors but also internally from the investor relations teams, fund controller office, risk and compliance oversight functions or management companies.
Each have their own specific requirements so for these divergent groups of stakeholders, easy access to quality data can go a long way in freeing them up to focus on value addition, without the burden of replicating and maintaining information in each group.
In this case, greater customization and clean app-based dashboards can bring a level of modernization to alternatives through automation. Data reporting in alternatives is on the cusp of a major shift with both fintech companies, as well as service providers, in a race to design customizable app-based tiles and dashboards, with drill down capability that can provide information at a user’s fingertips.
Graphical user interfaces and visualisations that can support transparency into a fund’s portfolio supported with reliable data sets, can help managers meet the increasing pressure from their investors and regulators.
With the increasing flow of capital to alternatives, managers are launching more creative and attractive products, as they vie to attract investors with the best assets. Those with a bird’s eye view of executions across their portfolios, made achievable by a service partner with a robust technology platform and digital tool kit that can support transparency and oversight, will be the earliest in catching the worm.
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