Adapting to a data-centric world: is private capital playing catch-up?

As investors demand more timely and comprehensive data on their investments, private capital managers must raise their technology game or risk losing out.

The demand for data grows daily. Investors expect fast and frequent insights on their holdings, especially in regions with complex regulations such as Europe.

That’s why data transparency through upgraded technology and outsourcing will be a key objective for private capital managers in the next decade.

In a sector where some data is still assembled in spreadsheets, a big leap forward is needed.

Intertrust Group, in collaboration with Global Custodian magazine, surveyed private capital fund Chief Financial Officers (CFOs) and their investors about expectations in the face of demands for the more frequent provision of data and information.

In the next 10 years, CFOs expect their limited partners to require data updates on specific areas of service with increasing frequency. In particular, 64% of respondents in Intertrust Group research said their investors will demand access to live or daily updates on portfolio performance and 57% on cyber-security.[1]

While private capital managers and CFOs face the same set of challenges and demands across the world, Europe has a more complex framework for setting up funds, regular filings and reporting.

Interestingly, respondents from Western European markets, notably Germany, France and Italy, expect a relatively higher degree of engagement on the part of their limited partners, with ESG as well as diversity and social inclusion to the fore.

At the same time, interest in ESG criteria in the Middle East has been steadily growing, although not at the same pace as in Europe. Abu Dhabi has issued ESG disclosure guidelines for listed companies. They are designed to support economic growth while encouraging the business community to adopt sustainability practices. Dubai has taken similar steps.

More and more investors are skewing their portfolio towards companies that prioritise ESG aspects. As a result, CFOs are expected to produce more ESG data and metrics in their reports to comfort limited partners that their investments meet such criteria.

Huge demand for actionable data insights from managers and limited partners

From a global perspective, demand for data transparency will be huge, both from managers and investors.

There is an intense need for integrated portals where managers and investors can gain an immediate pulse on the performance of certain investments. They may also need the integral portals to enable them to keep a watch on operational SLAs or compliance calendars across SPVs in different jurisdictions, perhaps cutting across service providers to get a swift update on governance.

Data aggregation has never been more important. As a consequence, technology is critical for CFOs, who are under pressure to put the right solutions in place.

Today, however, data is often aggregated in rudimentary forms, such as spreadsheets.

The ideal solution is a highly automated environment, with a smooth workflow and comprehensive data feeds. That’s why current norms for data delivery will require a significant step up in the near future.

Ideally, fund managers should provide investors with the necessary information on a portal that is auto-refreshed in line with typical reporting frequency, and have technology and tools to provide customised reporting based on client requests. Outsourcing to a service provider like Intertrust Group can add a competitive edge here.

Stepping up technology and outsourcing for funds

Investors’ demands will continue to increase, and the CFOs set to benefit will be those able to meet them.

Although financial performance remains investors’ number one priority, they will increasingly look for managers who can provide a much higher level of data transparency.

To address this challenge, one-in-four CFOs plan to expand technology within their own finance teams.

However, it’s not always possible to have a complete operational set-up in-house. This means CFOs are giving higher priority to outsourcing.

Outsourcers are used to dealing with a variety of funds with different strategies and CFO needs. They have the right technology, the ‘best in class’ solutions and experienced staff to ensure the best practices are in place.

More outsourcing enables CFOs to manage robust operations with a lean in-house team and at the same time avoid the pitfalls of human data errors.

Besides, growing the in-house finance team without also investing in technology may not be enough to compete with rivals who offer more cutting-edge solutions to clients.

Intertrust Group regularly helps clients aggregate data across their service providers and develop products to meet their objectives, while reducing reliance on in-house operations.

In the long run, automation will be crucial. It will help achieve significant cost efficiencies and lead to more confidence in the data produced. It can be timely, more accurate and cut down dependency on manual processing.

The spreadsheet, it is clear, is dead.

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*Source: Global Custodian in partnership with Intertrust Group; a global sample of 300+ chief financial officers at private capital funds were surveyed between 20 November 2020 and 26 January 2021, including 88 in the US