How fund operators can learn from the drive for transparency
Changing industry norms, driven by trends and a desire for more openness in operations, could be an unexpected opportunity for new business and better ways of conducting operations, says FINBOURNE Technology’s CEO Thomas McHugh.
Fund Operator Editor POSTED ON 6/23/2022 2:26:02 PM
The ways that fund operators can be more reflexive to industry change as well as what to watch out for, have to be carefully monitored, especially around data and transparency, said industry experts.
In a Clear Path Analysis webinar, in association with FINBOURNE Technology, “Clearing the technical debt of the past to future proof the investment industry”, several panellists from Equinox Partners, Ruffer LLP, Fiera Real Estate, and FINBOURNE Technology, examined how companies can cope with investor demand for transparency and other changing industry norms.
“There is a sort of inexorable shift. The external market pressures are [trends such as] ESG and the raft of investor demands, but we have forgotten about the rise of direct indexation in the US."
The need for change was especially focused on with driving change in a way that will mean industry-wide agreements on data sharing, said FNBOURNE’s, Thomas McHugh.
“There is a sort of inexorable shift,” said McHugh. “The external market pressures are [trends such as] ESG and the raft of investor demands, but we have forgotten about the rise of direct indexation in the US,” he said.
The practice has been gaining popularity - in 2021, CNBC called direct indexing “the hot new trend” and highlighted that it won’t work as a strategy for all kinds of investors. Vanguard, BlackRock, and Morgan Stanley have all acquired subsidiaries to break into the direct indexation market in the past twelve months.
“The relentless rise of more complex private assets will lead to a mixture of public and private assets within a portfolio almost everywhere. Every long-only asset manager has a risk overlay. Every large private equity firm is doing late-stage venture capital and every large venture capital firm is doing mid- and early-stage.”
McHugh said that the end consumer will expect more data due to trends such as this. “The relentless rise of more complex private assets will lead to a mixture of public and private assets within a portfolio almost everywhere. Every long-only asset manager has a risk overlay,” he said. “Every large private equity firm is doing late-stage venture capital and every large venture capital firm is doing mid- and early-stage.”
Industry site Venture Capital Journal says that “Asset managers participation in venture capital deals has grown in recent years.” It adds that due to this, non-traditional investors are now going downstream even further and participating in different kinds of deals, which will likely impact the market for years.
“You are seeing this change everywhere. I don’t believe that the next iteration is going to be about unified data centres,” McHugh said. Instead, he sees that the International Swaps and Derivatives Association’s (ISDA) Common Domain Model (CDM) doing a good job on transaction reporting, standards, and convergence.
“The next phase is going to be more on how you bring about completely unrelated, historically, and disparate datasets,” he said, such as private markets assets, which will then need to be brought together in one platform that presents to end investor what they own and how much it is worth in a consolidated manner. “This includes everything from pensions, automobiles, homes, wine collections,” McHugh said.
The same process, he added in conclusion, will therefore apply to real estate and infrastructure, such as building management systems, building occupancy rates, and rent rolls in commercial property.
To read more of this discussion and see the report in full, click here.
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