Following our earlier discussion on private market operating model considerations for asset managers and asset owners, Dan Sharp and Matt Evershed conduct a deeper dive into arguably the most important component of the Sionic operating model framework – technology.
Technology is at the heart of the financial services industry and the alternatives asset management sector is no exception. Technology must address the key challenges faced by both limited partners and general partners:
- Dealing with a high volume of unstructured data and manual processing; a significant pain point for the industry.
- Delivering automation while retaining sufficient flexibility and ability to customise in order to meet increasingly demanding reporting requirements.
- Ensuring sufficient coverage of the core deal life-cycle activities across asset classes, ideally through a single, integrated platform.
Cue the arrival of a handful of new and dynamic fintechs, co-founded and run by industry veterans who have first-hand experience of private market challenges, and who have embraced new technologies and a start-up culture to create innovative solutions to address them.
These platforms apply new technologies to process vast amounts of unstructured data – emails, PDFs, spreadsheets, websites – gathering, cleaning, verifying, optimising, aggregating, storing and reporting across multiple levels of the private market fund structure at fund, deal, portfolio and company level. By embracing modern technology such as AI, data visualisation tools and practices, self-service techniques, and initiative widgets and dashboards, they have been able to offer scalable mass customisation, supporting the bespoke nature of private market deals.
Once the data management challenge has been addressed and the integrity of the underlying data required to support decision making is high, the ability to deliver robust pre-deal capabilities (fundraising, sourcing deals, structuring) and post-deal capabilities (life-cycle management, processing capital calls and distributions, calculating carry and fees and monitoring cash-flows, risk, exposures, and performance) and to cover the full deal life-cycle of fundraising, deal sourcing, execution, management and exits on one, unified platform becomes much easier. These capabilities present firms with opportunities to make better, data-driven investment decisions and realise efficiencies across deal life-cycle management.
Embracing new ways of working
We see these platforms being adopted by both limited partners and general partners, albeit with different use cases.
- Limited partners use these platforms to monitor and manage investments, looking at performance and risk across their general partner investments and portfolio companies. In addition, given the quality and quantity of data held (one vendor held data on over 1,300 general partners and 8,000 funds) vendors offer innovative benchmarking capabilities allowing limited partners to benchmark general partner portfolios and generate geographic, sector and industry insights to better understand their investments.
- The creation of front-to-back platforms has allowed vendors to extend their service offering into limited partner investment operations, offering deal management services whereby any deal life cycle event, namely capital calls and distributions are booked into the system on behalf of the limited partner. Reconciliation capabilities allow the limited partner to view these transactions and reconcile back to their custodian to ensure accurate record keeping and position data. Such a service can help reduce a limited partner’s operating costs as the processes, systems and people involved in carrying out such tasks can be rationalised.
- On the other hand, general partners have used these platforms as an investor relations tool when fund-raising, having uploaded their data onto the platform they can use the data visualisation, analytics and reporting capabilities to respond to insurance distribution directive and operational due diligence requests rapidly, to secure capital commitments. Both can benefit through the capability to construct bespoke exposure management and performance benchmarks built off the rich data sets held by the platform.
Choosing the right solution
With the arrival of these well-designed and well thought-out private market solutions, there is increased support for pursuing a best-of-breed approach to an asset manager or owner running assets across public and private markets. Our asset management team have a wide network of professional relationships with the leading vendors in this space, if you would like to find out more and understand how such technology could be used to support your private markets business and the impact on your existing operating model, please contact us.
- Read our first article in this series: Thinking alternatives? You’ll need alternative thinking
- Find out more about the Sionic-Funds Europe FundTech Awards 2020.
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