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Bringing private capital funds into the era of digital technology

26 October 2021

Chitra Baskar

President, Fund Solutions

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Chitra Baskar

President, Fund Solutions

View bio
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Our major survey and report on the future of fund technology finds that private capital funds often lag behind in terms of digital evolution. We consider why and how they should embrace technological innovation

Private capital funds could become more competitive by embracing digital technology and automation. This is the key message from our recent research and report, The Future of Fund Technology.

We surveyed 300 senior-level decision-makers in private capital firms, using the findings to explore the technological landscape for private funds and the ways in which they can harness technological innovation to improve performance and customer experience.

The survey revealed that a sizeable minority of funds are missing opportunities for innovation. We found that one-third of private capital funds are still using primarily – or even entirely – manual processes. And one-fifth of respondents don’t believe automation and new technologies will be vital to competitiveness over the next five years.

These funds risk being left behind by more advanced competitors. The 68% who say automation and digital technology will be vital are the funds that will shape the coming years. Automation gives private capital funds an edge. The 23% whose processes are already entirely automated show what the future will look like.

The key is data: doing more with it, understanding it better and having greater control over it. There is still time to catch up, but tech-sceptic funds need to move quickly.

Where are fund currently using technology?

Where digital technology, such as AI, is employed by funds today it is mostly used to drive investment strategies. Technology could certainly be used more widely in the back office, where data analytics and machine learning should be priorities. It could make an immediate impact, for example, on the areas our respondents consider the most resource intensive: managing corporate actions, distributions and investor reporting (28%), followed by investing, due diligence and capital calls (21%).

Caution isn’t necessarily a bad thing. Almost half the funds in our survey (45%) say they wait before introducing new technology. They want to get a sense that it is working for others and look for positive reports from trusted sources.

It’s the attitude of another third of respondents which is more concerning: 23% say they only use new technology if there is no other choice, while 8% – almost one in 10 – actively avoid technology unless the regulator has specifically approved or mandated its use.

Investor demand for fund technology is growing

Investors are becoming more sophisticated and there is growing expectation from them for more insights and better reporting. Funds that are behind on technology generally often struggle particularly with this demand. It is the more forward-looking, tech-savvy funds that are setting the standard for better investment accounting and investor reporting. This, in turn, fuels greater reporting demand from investors in funds that are trailing.

High quality service from the leading funds builds pressure to invest in technology for the rest of the market. Funds that are behind should be making sure that their infrastructure is sufficiently sturdy to take advantage of opportunity. Many are doing just that. Almost half (47%) say that technology investment in the next five years will be for investor relations and reporting.

Whatever the size of the fund, the goal is the same. It needs a single, golden source of data coming into the organisation. That requires technology to process and store what’s current. Being able to handle more data means it might also need to bring in other third-party information – for example relating to ESG – to add to analytics models. Better insights from that data mean an improved investor experience and greater differentiation from rivals.

There is no one-size-fits-all solution on fund technology

In such a dynamic, fast-moving environment, funds must keep pace. This means existing long-term strategies may no longer be appropriate. It’s not only important that funds develop strategies to invest in these technology areas, but also that they make the investments in a timely manner.

Different funds must find different answers to their technology needs. Many have made significant investments over time, re-examining their platforms, considering transformation which includes leveraging international platforms from quality service providers.

Other funds, meanwhile, may have been content with a combination of Excel and Quickbooks until now, but that will no longer be enough.

In the short term at least it’s likely that big funds will grow bigger. Smaller funds will have to innovate to differentiate themselves. They will be under pressure to reconsider their processes, and the best solution could be to work with a third-party provider. Today, technological capability is an ideal way to do that.

Download the full report now

Why Intertrust Group?

  • Intertrust Group provides world-leading, specialised administration services for bespoke corporate, fund, capital market and private wealth services
  • With more than 4,000 employees in over 30 jurisdictions, we provide the expertise to help our clients thrive
  • We provide state-of-the-art technology, consisting of proprietary and leading vendor technology for a comprehensive offering to private capital fund managers, portfolio companies and banks
  • We can provide clients with 90% automation and straight through processing (STP), delivered across business verticals