With allocations to alternative assets increasing amongst investors, Alternative Investment firms are looking to improve their end to end operating model efficiency by formalising succession plans, better-integrating analytics, and making use of digital and big data tools. Many are also sharpening their risk-management and hedging processes, helping to insulate firms from macro-economic shocks, such as those that have impacted the world in the first months of 2020:
A higher number of investors and growing demand for greater performance and risk transparency means that Alternative Investment firms can no longer rely on manually-intensive spreadsheets and small-business software to manage high volumes of capital transactions, and so firms are reviewing their operating models and technology stack to ensure they are scalable.
Despite hurdles, Alternative Investment firms have been adapting to be more efficient in the way they track their investments and more effective in identifying value creation opportunities and synergies. CRM and pipeline tools are helping firms structure their deal origination processes in the face of year on year record increases in dry powder. Vendor tools are being used to help more easily visualise the relative performance of alternative funds against peer funds or public indices as firms grow in size. These systems allow customisation of sets of metrics, unlocking improved understanding of portfolio performance by having more live data points linked to the business as well as the industry peers. Alongside this they are facilitating the inclusion of ESG metrics in investment monitoring processes.
These systems allow users to automate workflows, enhance decision making, and efficiently manage heightened regulatory requirements.
Investor Relations portals make it easier to meet increasingly complex LP reporting requirements, and firms with the right data architecture can move towards a self serve model covering core data sets. Moving to the integrated data architecture required to deliver this reporting remains a challenge for firms that are overly reliant on Excel. In answer to this, some firms are adopting end-to-end platforms as the core technology, and integrating these with specific decision support applications as required. These systems allow users to automate workflows, enhance decision making, and efficiently manage heightened regulatory requirements. A growing trend, especially amongst the larger technology focused GPs, is the adoption of Artificial Intelligence to identify opportunities, expediting market research, and support investment approval and monitoring processes.
Alternative Investment firms are also building more scalable and flexible models by using third-party administrators and outsourcing non-core activities so that they can concentrate on differentiating investment activities. All major global administrators are developing their private asset administration propositions alongside the niche specialist providers.
This period of significant market volatility may seem a strange time to advocate for technology change. Yet those firms that have moved from excel towards more scalable platforms will be best placed to react to the immediate challenges and capitalise on the opportunities as the dust settles.
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About the Authors
Alex Glaister
Senior Manager
Alex has been a consultant to the financial services industry for more than sevenyears and helps lead Alpha’s Alternatives Practice with a focus on Alternative Credit. He has helped a number of European Leveraged Loan and Private Debt managers to shape and deliver strategic change impacting every function at the organisation. Alex’s project experience with Alternative Managers includes the following: definition of technology strategy and roadmap; selection and implementation of an origination and portfolio management platform; development of a new outsourced Middle Office; and onboarding of the first client.
Dominic Coyle
Manager
Dominic is a Manager with over six years of consulting experience in financial services and is part of the Alternatives Practice at Alpha. Dominic has experience working with clients within the private equity industry on projects seeking to: improve investment processes; identify efficiency savings; and assess and implement vendor solutions.