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Data delivery is now the biggest challenge for fund-of-funds.

In a new report, AI data company Accelex and software platform Carta said that there were growing data challenges in the private capital industry.

"The industry’s data ecosystem has grown more unwieldy, with many fund-of-funds wrestling with mountains of documentation, inconsistent delivery, and little standardisation.”

The Hidden Cost of Growth: Data Challenges for Fund-of-Funds surveyed 100 senior investment professionals across the UK, Europe, and the US, and established four themes: persistent data issues, operational inefficiencies, mounting fee and investor pressures, and a growing shift toward automation and AI.

According to the study, 92% of surveyed fund-of-funds professionals say unstructured and delayed data from General Partners (GPs) has negatively impacted investment decisions or reporting. 

The report arrives at a time of unprecedented growth in private markets: between 2000 and 2023, private markets AUM soared nearly 20-fold to reach $22 trillion.

“With scale comes complexity – the industry’s data ecosystem has grown more unwieldy, with many fund-of-funds wrestling with mountains of documentation, inconsistent delivery, and little standardisation,” said the report.

“For fund-of-funds, the rapid growth of private markets is a double-edged sword. Greater access to private assets drives diversification, but the volume of unstructured, inconsistent, and delayed data now poses a front-office problem—directly impacting performance and fiduciary obligations,” said Michael Aldridge, President and Chief Risk Officer of Accelex. 

Earlier this year, Accelex said that over half of fund administrators (55%) are struggling with data acquisition and governance due to the rapid growth of private markets in another study.

The results in that study showed that 55% of fund administrators consider data acquisition and data governance as their primary operational challenge. “Private markets' rapid growth has fundamentally reshaped the demands of the buy-side,” said David Mellars, Senior Vice President and Senior Director of Buy-Side Middle Office Product Management at FactSet.

“While many firms turn to AI, generic tools often add errors and inefficiencies.”

The wider context of the data and operational burden has long been considered.

What did the report say?

Aldridge said that the issue was largely that manual processing “can’t keep pace,” leaving critical decisions to be made on incomplete information.

“While many firms turn to AI, generic tools often add errors and inefficiencies,” he said.

There were four key areas of challenge that the report identified:

• Data delivery is the biggest challenge: 31% of respondents said the way GPs deliver information—often as PDFs, scanned files, or ad hoc email attachments—is their number one pain point. 
• Data quality issues are abundant: 92% struggled with data quality, with 43% citing irregular formats, 40% flagging inaccuracies, and 38% noting varying calculation methods. 
• The push for automation is strong, and AI adoption was also an issue: Increasing automation is a key priority for 43% of surveyed firms, while 80% were leveraging AI or machine learning for data access and structuring. 
• Fund-of-funds face major operational inefficiencies. 49% cite communication and coordination with GPs and their LPs as the biggest challenge, while 44% struggle with regulatory reporting. Manual processes remain widespread, with 42% pointing to difficulties in extracting and normalising unstructured data. As a result of these inefficiencies, 33% of fund-of-funds teams’ time is spent on data handling, diverting resources from higher-value activities and alpha generation.

The fourth and final key area is that investor demands are rising. “More than ever, fund-of-funds face calls for granular reporting, transparency, and real-time information—just as fee compression puts pressure on margins,” said the report.

In response, 56% of managers are turning to technology and automation, 44% absorbing or passing on costs, and 41% are reducing internal expenses.

What will this mean going forward?

The report said that firms that modernise their data operations will free up expensive resources from low-value tasks, allowing their teams to focus on insight, performance, and client service.

“Those who lag risk being left behind as investor demands for transparency and sophistication continue to rise,” it added.

 

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