Fund administration is no longer just about bookkeeping but helping fund managers and their investors, through technology, to manage their investment portfolio.
The alternative fund management industry is witnessing a huge rise in the volume and diversity of data being ingested, as technology innovation facilitates firms in their research and portfolio construction activities; not to mention using advanced analytical tools to improve the quality of fund reporting.
Investment and advisory firms have pioneered the use of data science in private equity, using the cloud to process large data sets and build a picture of what is happening in a given business, minute-by-minute, day-by-day.
This is a golden age of data and analytics as asset managers start to increasingly use digitization to find value in the marketplace.
Fund administrators are well aware of the rapid pace of technology innovation and are themselves evolving in line with the complex nature of fund structures and allocations within those funds.
"Coupled with the rapid pace of technology innovation, fund administration is using technology to approach the new complexities of fund structuring and investor types and needs," says Joanne Baudin, Head of Fund Services at TMF Group (Australia). "Fund administration is no longer just about bookkeeping but helping fund managers and their investors, through technology, to manage their investment portfolio, with visualisations and analysis, help manage documents, data mine and explore information with metrics."
As Private Equity Wire reported last year, the growth in data gathering by General Partners (GPs) on behalf of Limited Partners (LPs) is driven by the market developments and the regulatory focus on the space, leading more LPs to delegate the task of data management to their administrators. Increasingly, investors want more granular data on their investment portfolios, especially in respect to ESG criteria and key financial KPIs to better monitor performance.
In a report published by US technology group FIS, nearly half (48 per cent) of fund administrators say that asset management clients already routinely request or expect analytics and segmentation services as standard.
As a result, fund administrators, are focusing on becoming ever more technology-driven to best serve their clients.
Baudin says that while common administrative tasks such as keeping funds' general ledgers and tracking investors' commitment and standardized investor reporting are typically automated, other tasks such as ILPA (Institutional Limited Partners Association) reporting or INREV reporting, anti-money laundering (AML) and know your client (KYC) checks are becoming increasing automated.
This is largely thanks to blockchain-enabled technology, which is helping to improve data security and transparency by virtue of the immutability of the blockchain ledger on which AML/KYC data is held; in turn, this is enabling asset managers to speed up the subscription process as they seek to secure new investors for their funds.
When asked to provide one example of a recent tool/solution that TMF Group has introduced - either in the back - or middle-office - to illustrate how the firm is leveraging technology, Baudin explains:
"We are making significant investments in automation of repetitive tasks in the spirit of our philosophy that technology should support our experts but not replace them. Holistically we are building an aggregator level within our application landscape, in which we take outputs from all the applications which we utilise around the globe, collating those outputs and producing real-time data on all aspects of a fund structure globally. Added to this we are developing a digital visualisation of this, so essentially a GP will be able to see the status of all deliverables in real time, from any device or location via a single harmonised platform, allowing the vertical connection of the funds stack from fund, to SPVs to OpCos."
"KYC360 works on top of our existing infrastructure and systems, it works hand in hand with how we use for example Investran, which is a market leading fund administration system for private equity funds. A dynamic investor allocation tool, utilizing multiple allocation methodologies in consideration of opt-outs, side letter agreements, deemed designated contributions, rebalancing etc, Investran offers a comprehensive, standard and customized reporting system specifically designed for the needs and requirements of complex funds."
One important feature within Investran is a data mining tool to enable fund managers to analyse their portfolios and underlying portfolio companies as they seek to build in long-term value for their investors. Administrators who can smartly deploy technology based on the specific needs of their clients can, as a result, give some of those clients an edge in the market.
"Managers are able to deep dive into the data and analyse in greater detail as well as manipulate data according to their set parameters," states Baudin. "This means greater agility in investment making decisions and focusing on what managers do best; which is invest and divest."
Also, by using technology together with the administrator's robust workflow process and methodology, "will ensure that all the data points for accounting, portfolio tracking, and investor reporting are from the same source", adds Baudin. This alleviates the data integrity and reconciliation issues that might otherwise arise and creates better operational efficiency when it comes to data management.
For fund managers to optimise the true value of any new technology, it is incumbent upon fund administrators to have the right system architecture in place; one that can adequately support a wide range of technology tools in a single integrated offering.
Baudin sees data visualization reporting tools as one important aspect of innovation, delivered through a digital platform alongside risk analytics and regulatory reporting.
Of course, the wider implication to this, aside from helping fund managers better control their portfolios, is the improved level of transparency provided to institutional investors. This cannot be understated when one considers the growth and complexity of private market funds, which attracted USD919 billion in net new assets in 2019 according to McKinsey's latest private markets report.
With investments becoming more bespoke, technology is vital in handling the different investment terms, additional share classes and fund structures.
"GP/LP reporting will improve through document management centres where clients can manage investor capital activity documents, track investor document metrics and upload documents for investors. Notification alerts and security preferences can be built in for each investor," says Baudin.
The value of technology within fund manager deal teams looks set to continue over the coming years as artificial intelligence becomes more ubiquitous. While in years past fund managers tended to favour in-house administration, there is increasingly a realisation that outsourcing many of the middle and back-office functions to a trusted fund administrator is now a sensible, cost-effective option.
"Technology is expensive and needs to be constantly updated. The administrator is continually monitoring industry trends and the associated technology to ensure that its services address the real needs of clients and their investors.
"By outsourcing the fund administration and accounting function - and not focusing on the mundane book-keeping tasks - with the aid of technology fund managers can focus more on bespoke LP reporting, and analysing/understanding funds' and investments' key performance indicators," concludes Baudin.
This article was originally published by Private Equity Wire.
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