Bringing alternative asset management into the 21st century
Chris Woodford, Chief Operating Officer at Fintex Capital shares how the firm is modernising its asset management approach through a combination of tech, transparency, and trust.
Fund Operator POSTED ON 10/18/2021 9:03:07 PM
Unlike securities which are traded on a public market, alternative investments - such as hedge funds, private equity funds or alternative credit – have traditionally been seen as offering greater returns in exchange for elevated risk and reduced investment transparency.
Times, however, are changing. A shifting regulatory environment coupled with transforming investor demands means trust, and by extension transparency, have considerably escalated in importance among the alternative asset management community in recent years. Transparency has therefore become a major board-level consideration for many alternative investment firms today.
Two pieces of research from recent years have confirmed, firstly, how asset managers and investors view transparency in the current investment environment, and, secondly, how greater transparency among asset managers actually leads to greater returns for their investors.
"Transparency has become a major board-level consideration for many alternative investment firms today.”
Firstly, a survey of asset managers and institutional investors, conducted by Northern Trust and the Economist Intelligence Unit, found that “degree of transparency” was cited as very important by 63% of alternative asset investors; furthermore, transparency had become significantly more important in recent times, with 17% of respondents stating it was their most important post-investment consideration – a nearly six-fold increase since the 2008 financial crisis.
Secondly, a study of 1,800 funds investing in private markets, undertaken by software provider eFront, found that those funds that provided the most comprehensive data to their investors are also the best performing.
Whereas once transparency may have been a fluffy buzzword or box ticking exercise, forward looking alternative investment funds will need to adapt to a new reality in which transparency is king. And when there is a substantiated link between greater transparency and increased returns, as established by the 2018 eFront study, the question is: why wouldn’t alternative asset managers work to be more transparent?
As is the case with many forms of transformation, company leaders are often aware of the need to transform but aren’t entirely sure how to do it – and increasing transparency is no exception.
“eFront, found that those funds that provided the most comprehensive data to their investors are also the best performing.”
The solution lies in technology - and the innovative range of digital platforms and tools that are making operations such as onboarding, risk management and performance reporting more efficient, accurate and transparent.
For many alternative asset management funds, an operation as simple as providing investors with regular updates and reports remains an analogue one – with funds still printing off reams and reams of documents, filled with small print, for investors to review.
Clients (who may not always know off the top of the head the makeup of their portfolio) have neither clarity nor a concise overview as to where exactly their money has been invested, or how it is performing.Compare this opaque, antiquated approach to a tailored, digital reporting platform; one that offers clients an instant, personalised overview of their investments and distributions - including all the key investment facts on a visual dashboard and a digital archive of that fund’s quarterly reports.
“With investors better able to transparently see exactly how their money is working, a genuine relationship is established built on trust.”
In this instance the client experience is streamlined - and with investors better able to transparently see exactly how their money is working, a genuine relationship is established built on trust. The fund meanwhile is able to save reporting time and resources, with reports automatically generated and delivered. By offering absolute transparency and a superior means of reporting, such a model works to serve both the fund and their clients’ needs far better.
This is why, earlier this year, we at Fintex Capital launched the second generation of our investor portal, FiRE (Fintex Reporting Experience). The platform has been designed to be the most transparent in the private debt market, offering investors a completely transparent, 360° overview of their investments available instantly 24/7, together with historical information on investments and fund performance.+
Beyond reporting, there are areas of alternative asset management operations that are ripe for digital disruption – with the client onboarding process and risk monitoring systems two examples.
Automating and digitalising aspects of the onboarding process saves fund operators further resource and time, whilst optimising the process and reducing hassle for the client. Digital risk monitoring systems meanwhile helps further reduce risk exposure by predicting and identifying threats to investments before they can develop.
"Beyond reporting, there are areas of alternative asset management operations that are ripe for digital disruption”
Risk management is an area we at Fintex Capital have invested in, with our in-house risk management tool LISA providing an instant diagnoses of a portfolio’s credit health. The tool enables us to undertake deep and versatile data analytics accurately and efficiently, and provides early warning indicators – thereby identifying potential areas of risk.
In Silicon Valley, almost every financial company has integrated aspects of transparency and digital transformation; as such, almost every financial institution has, in one way or another, become a fintech. Within the alternative asset management sector in the UK, there remains much more work to be done in digital disruption and transformation, however.
It should be noted that, whilst technology can play its part, it cannot solve the issue of a lack of transparency within the alternative asset management world by itself. Of equal importance is a culture change – a shift in mentality – which sees alternative asset managers adopt a much more proactive approach to transparency and openness.
“Whilst technology can play its part, it cannot solve the issue of a lack of transparency within the alternative asset management world by itself”
There remains huge potential within the alternative asset management sector for disruption, digitalisation and a new culture of transparency and trust. Taking inspiration from the pioneering financial institutions of Silicon Valley, coupled with firms investing in technology and adopting a new transparency mentality, will mean greater returns – and client satisfaction – in the long run.
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