The frog’s demise: How alts quietly turned up the heat on data ops

By Andy Phillips

In the world of alternative investments, change doesn’t always announce itself with a bang. Information connectivity changes, in particular, have been much more similar to the proverbial frog in a pot of slowly heating water—not tracking the existential threat until it’s too late.

Allow me to explain.

Decades of Slow Simmer 

Cast your mind back to the late nineties and early 2000s. Hedge funds were the darlings of the alternative investment world, commanding the lion’s share of allocations. Back then, processes for managing quarterly reports from GPs were typically as simple as opening an email. PDFs would hit the inbox, ready for immediate sorting, saving, and consumption.

But, as we approached 2010, the shift began. Private equity started gaining ground, slowly but surely edging out hedge funds in many portfolios. And, with this shift came a new way of doing things. With more PE firms setting up shop in the aughts, private equity was expanding with a more “tech-forward” approach, and also getting more savvy about information security. Enter the rise of online portals for document distribution.

By 2015, what started a few years earlier as a trickle had become a flood. Alts portfolios that were once 70% hedge funds and 30% private equity had completely flipped. With that flip came a total overhaul of how we accessed and managed investment documents.

Fast forward to today, alts data management has reached a boil. And, true to the allegory of the frog, the heat was turned up just gradually enough that the demise was nearly imperceptible.

As portfolios have grown more diverse and complex, so too have the operational infrastructure and processes that facilitate the exchange of information. Gone are the days of a simple PDF download from the inbox; investment teams today live in the era of portals. Managing a hundred, two hundred, or even three hundred concurrent fund investments across a growing number of portals—with at least half of those requiring multifactor authentication—has been nothing short of a fundamental shift in how we operate in this industry. 

The GP Portal: A Digital Newsstand

I liken the delivery of investment docs via email attachments to having your morning paper tossed to your doorstep by the entrepreneurial teenager on a bike. You roll out of bed, grab your coffee, and there it is – all the information you need to start your day.

The portal-centric workflow favored by GPs today has forced LPs to take a step back toward the town crier era. It’s like every morning you get dressed, find your keys, brave the elements, drive into town, say hello to the newsstand owner (who, for some reason, never seems to remember you from yesterday), pass over your $3.50, and then finally get your hands on the printed headlines. But wait—it’s not even the complete news, that was just the local news. You’ll need to drive to different parts of town for the world news, sports section, and weather forecast. Essentially repeating this ceremony for every single piece of news or article you want to consume.

Of course, there are clear security advantages to using portals over email attachments—no one can swipe your morning paper from the doorstep if you are driving into town to retrieve it. But, operationally, this “forward progress” feels a lot like extra work.

The Bright-Eyed and Bushy-Tailed Brigade

I’ve made it a habit to ask everyone I meet in this industry whether document gathering is their favorite part of the day. The response is always the same: a laugh, followed by a wistful sigh as they imagine all the ways they’d rather spend their time…such as poring over the actual data from these documents from front to back, upside down, inside out, extracting every last drop of insight.

Here’s how our industry has chosen to solve the data ops problem. You probably have your own version of “Tommy, Suzy, and Alex.” These are the new grads who join your firm, wide-eyed and full of enthusiasm, ready to dive into complex financial models and groundbreaking investment strategies.

But, instead of solving the world’s problems at your mission-driven endowment or family office, their first task is managing your ever-growing influx of documents and data. Tommy spends his days logging into countless portals. Suzy’s job is to download and organize hundreds of PDFs. And Alex? Well, Alex is the lucky one who gets to compile all of this information into reports for Bob, your portfolio manager who works upstairs.

Tommy, Suzy, and Alex spend their waking hours trying to answer Bob the portfolio manager’s alarmingly elusive question:

Where are we at with the portfolio? 

The tragedy of the Bright-Eyed and Bushy-Tailed Brigade is that as soon as they have an answer for Bob, it’s already outdated. It’s a drudgerous, Sisyphean exercise. Mostly, we’ve resigned the fate of these cohorts of fresh talent as the youthful sacrifices demanded by the gods of alts data management.

These roles are high-burnout and high-turnover.

But must they be?

A New Era of Connectivity

Luckily, as the alternative investment landscape has evolved, so too has the toolset available to savvy investment teams.

Imagine a world where your personal town crier not only delivered you the news themselves, but also organized it, highlighted what’s important, and even pointed out what might be missing from the headlines.

Forward-looking technologies (ahem, Canoe) are transforming the daily grind of alternative investment management. No longer do professionals need to spend days, or even minutes, hunting down a single capital call notice or reconciling documents from various sources. Instead, they can have real-time insights at their fingertips, allowing them to answer that all-important question: “Where am I at with my portfolio?” at will.

The stronger advancements within alts tech include the ability to surface both a bird’s-eye view and granular details. Senior stakeholders can quickly gauge the health of their connectivity and document flow, while operations teams can drill down to verify specific allocations or document types. It’s like having a Google Maps version of your portfolio, allowing you to go from the world map right down to street level, all within a few clicks.

Canoe’s connectivity dashboards, for example, also learn from patterns and user inputs across our client base in order to anticipate needs and flag potential issues before they become problems. It’s not enough to just organize documents any more—the pace of today’s investment process requires rapid actionable intelligence.

For Tommy, Suzy, and Alex, this means their roles are evolving. Questions that took days to answer now take minutes. Reconciliation processes that were once a monthly headache are now smooth, daily routines. Those dreaded “Where’s this document?” emails from Bob are becoming the exception instead of the accepted day-to-day norm. Maybe Tommy, Suzy, and Alex’s first experiences in the field are now about creating value, not just managing data. Or, for the truly operationally enamored, they’re now piloting sophisticated control centers, navigating the complex waters of alternative investments with unprecedented ease and insight.

Perhaps the most significant change is in the level of confidence these tools have given investment teams. Investment managers no longer need to grow anxious over whether they’ve missed crucial portfolio intel. They have a clear, real-time picture of their document landscape, allowing them to make decisions with greater certainty and speed.

In essence, technologies available to investment teams today have the potential to reshape how alternative investment firms operate. We’re turning what was once a necessary evil—document gathering and organization—into a strategic advantage.

If the alternative investment world has turned up the heat gradually, companies like Canoe are providing a steady stream of ice-cold water, preventing the frog’s demise. The risk of boiling over in 2024 is a mounting threat. Using the tools available, however, the frogs of alts can relax in mere hot tub-like conditions.

The future of alternative investment management isn’t just about adapting to change, it’s about leveraging technology to stay ahead of it and unlock the next phase of growth. And, for firms embracing these new tools, that future is already here.

FEATURING:

Andy Phillips, General Manager of Canoe Connect, Canoe.