Recent TEN Panel Concludes: Remote Work Putting Additional Operational Strains on Alternative Investors that Cling to Legacy Data Infrastructures

Recently, Canoe hosted a virtual event with The Exchange Network (TEN) featuring panelists from Pilot House, Plante Moran Financial Advisors, and Trillium Asset Management, and attendee participation from more than a dozen family offices and investment management companies focused on alternatives.

The purpose of the event was to bring together wealth and investment managers to share best practices around alternative investment operations, namely strategies and tactics for efficient client onboarding, expedited client billing, production of comprehensive reports on held-away assets, and more.

Global alternative assets under management have exceeded $10 trillion and are on pace to reach more than $14 trillion by 2023, according to a report issued earlier this year by alternative asset data provider Preqin. The sector’s growth has been explosive over the last half-decade—it represented just $6.43 trillion in AUM in 2013—with about 80% of all institutional investors globally now invested in alternatives, according to the report.

But while the rise of alternatives has been impressive, the operational headaches they can present—in particular around document collection and data extraction—are significant, especially today with fund managers’ staffs stretched thin by the remote work challenges posed by the COVID-19 pandemic.

For instance, most funds currently rely on various limited partner (LP) website portals to individually download investment documents, a process plagued by latency and access issues. From there, the documents must be properly categorized and named, while the data contained within needs to be extracted, validated, and delivered into downstream accounting, performance, and analytics systems.

In traditional asset classes, such as equities, financial performance reporting is much more standardized, allowing easy automation of the data extraction process. For alternative investments, however, there are not standard, agreed-upon ways to report on an investment’s performance. This makes automation far more difficult, and the available technology capable of supporting this, until recently, was well behind the curve.

Automation enables firms to manage and share data much more easily, expediting alts-specific functions such as capital calls, distributions, team task assignments, or workflow monitoring. But data needs to be accessible and uniform to leverage automation.

According to a PWC report from several years ago, technology that improves data access and automation across their organizations would become critical for alternative investment firms. “The resulting analytics enable alternative firms to better measure the strength of their operational processes and enhance key functional areas such as tax, compliance, reporting, and investor servicing,” the auditor wrote in 2015.

The need to process innovative new assets—such as structured products or digital assets—has only increased since that time, while data management has become far more challenging. Despite the growth of the industry, many firms remain saddled with a hodgepodge of disconnected solutions, resulting in inefficiencies, unnecessary risk exposure, and the need to continuously plug holes in their data management infrastructure.

Practical Applications

One firm in attendance described their current operational processes and the challenges that have compounded during this period of remote work, and how technology has and will continue to improve efficiencies.

As a family office with $10 billion under management, this firm has two principal asset pools comprised of 350 individual funds, and 95% of the investments are alternatives. A structure like this—not uncommon for many family offices—would be an operational nightmare only a few years ago.

Today, this firm leverages a cloud-based solution to easily manage and track processes. Take, for example, a multi-step capital call. In this case, the firm’s administrator receives an automated notification of the need for a managing director’s signature, at which point the MD logs in from a permissioned device, signs, and confirms the wire instructions. All communications throughout the process are centrally archived to ensure the capital call has been managed accurately, transparently, and efficiently. Other critical but process-intensive tasks—such as valuations, calculation of roll-forward balances, and customized reporting—are handled quickly and accurately by the platform.

Automation to this degree is increasingly becoming the norm in the industry, creating significant competitive disadvantages for firms who continue to rely on outmoded technologies and costly, error-prone processes. As alternative investments continue to grow, managers’ ability to scale operationally will become a key focus of allocators, shining a spotlight on those whose data infrastructures have not kept pace.

Technology to the Rescue

Fortunately, Canoe now makes it possible to systematically retrieve these statements from multiple client or investor portals, email inboxes, and other sources, and to instantly pull data from unstructured statements into actionable formats, enabling seamless integration into downstream systems. Our technology not only enables firms to maintain their Investment Book of Record (IBOR) and centralize documents far more simply, but it also enables them to measure performance across managers, accounts, sectors, and more.

Largely SaaS-based with rigorous two-factor authentication added to securely facilitate functions such as credential and document management, Canoe enables users to easily handle requirements such as onboarding, team collaboration, and remote access.

In addition, our purpose-built platform brings a level of technological sophistication and collective intelligence that would be hard for in-house technology teams to replicate, enabling allocators and investors to more effectively support ever-increasing data volumes and business demands, a necessity given the rapid growth of the sector.

Canoe Intelligence is a financial technology company focused on reimagining data management processes for alternative investors and allocators. To learn more about how Canoe can help you streamline your alternative investment operations, please contact us for a demo.