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Why automation will drive the next era of private capital

14 December 2022

Keith Dingwall

Global Relationship Manager, Intertrust Group

Keith Dingwall

Global Relationship Manager, Intertrust Group

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In the calm before the storm, fund managers are evaluating their technology and – in many cases – finding it lacking.

These are tough times for many sectors. But the good news for private capital is that most firms have plenty of dry powder in reserve.

It probably won’t be long before they deploy it. Private capital activity may remain subdued but distressed deals are likely to take off in the next three to six months. And when deals start to look like good value again, asset managers will not hold back.

So things are quiet – for now. That gives managers a window of opportunity to get their systems and processes in order before the next burst of activity. In a new era of private capital, it’s essential that they do.

Data management challenges

Better, more cohesive technology is an increasingly important part of fund management thinking. In the recent extensive research behind our Halo Framework – conducted with Everest Group – 75% of respondents highlighted an inability to consolidate siloed data systems as a major business challenge.

Over half (53%) selected “data management issues” as one of their firm’s top three technology-related challenges.

In other words, many asset managers understand that, in a world of data, their technology is no longer fit for purpose. The question they’re asking in this period of relative calm is what they might do about it.

A new attitude to technology

Private capital lags way behind public markets in terms of technological sophistication. For a long time, managers considered alternative transactions either too complex to automate or too few in number to warrant a major investment in technology.

But that’s changing. Regulations and standards are tightening. Environmental, social and governance (ESG) rules are throwing more data challenges into the mix. Investors moving from liquid markets want more transparency and more detailed and frequent reporting.

While complex deals require significant human input, there’s a growing realisation that much of the administration around a private capital transaction can be digitalised and automated. That, in turn, frees up human resources for managing investments and other value-adding work.

The benefits of automation in private capital

All of this makes technology a growing differentiator in private capital. It creates more streamlined operations, reduces costs and improves the investor experience.

For example, automation creates a slicker and more straightforward onboarding process for investors. It makes transaction risk-profiling, cash movements and reconciliation easier and more accurate.

Automation, combined with sophisticated data management, allows for consistent and homogenous investor reporting, even in a complex multi-strategy environment.

Automated systems can also help firms track shifting global regulations.

At the same time, migrating workflows and other processes to the cloud can reduce the cost of maintaining IT infrastructure while enhancing security and collaboration.

The private capital technology ecosystem

With such significant benefits, why isn’t private capital already at the front of the queue?

For many managers, technology is becoming a strategic priority. But in this somewhat arcane world, selecting, implementing and maintaining the right systems is far from straightforward.

Traditional technology vendors are in the business of selling solutions rather than creating ecosystems. That often leaves firms managing multiple partners and a disconnected technology stack.

To see real benefits, they need advanced data management solutions and systems that integrate and talk to each other. They need a data lake approach that makes information accessible, configurable and usable, regardless of the platform on which it sits and to who it has to be delivered.

Any new technology they invest in needs to slot seamlessly into this ecosystem.

The talent challenge

These aren’t insurmountable problems by any means, but they do require a holistic approach and the talent to implement them.

That is another challenge. Talent is in short supply. In recruiting terms this is a buyer’s market. Salary inflation is rife as IT, data, compliance and ESG specialists (among others) shop around.

Outsourcing is one potential answer here because the right partner can help funds close both the talent and technology gap and manage both holistically.

But in private capital, there is never a one-size-fits-all solution. The main thing is that, in this period of relative calm, managers take a step back, evaluate what they have and understand what they need to do to create the integrated and scalable automated systems they increasingly need.

Our Halo Framework research suggests that many are doing exactly that, with the majority agreeing that increasing operational efficiency is a major strategic priority. You can download the full report here.

Why Intertrust Group?

  • Intertrust Group has 70 years’ experience in providing world-class trust and corporate services to clients around the world. Intertrust Group has been acquired by CSC, the leading provider of business, legal, tax and digital brand services, worldwide.
  • Our expert teams harness tools and cutting-edge technologies to eliminate costly errors in the handling of fund administration, investor relations and portfolio management.
  • Our Halo Framework identifies and describes a best-in-class, next-generation fund operating framework for private capital.