What are the key drivers for private markets to embrace artificial intelligence and other advanced tech?

The rapid growth and large size of the alternatives market has been matched by a growing amount of data that needs to be managed. As managers and funds get bigger, we are heading towards a point where that data becomes too much to handle, and we need more thoughtful discussions about how all of this information gets put to good use.

Secondly, the amount of data that is being demanded and delivered to GPs – even without that market growth – has broadened immensely. There are ever more reporting demands, whether they be ESG-related or linked to a greater need for transparency in certain aspects of the business, as well as in financial metrics.

Thirdly, the ultimate investors in the alternatives space are also demanding more information and transparency from their GPs.

All of this is happening against the backdrop of technology having rapidly evolved over the last five to 10 years. A lot of these demands to process more data – to use that data and to communicate that data more quickly – are happening just as the possibilities offered by technology are profoundly more expansive than they used to be.

A lot of tools that one needs to process this data are now available off the shelf from technology providers – especially from the cloud providers. Those providers have become a lot better at providing more than just software or hardware, and are instead offering enhanced computational capabilities, with AI falling into that camp.

So, demands have grown exponentially, and at the same time capabilities have come along significantly, which makes this a good time for private markets to embrace advanced tech. For a lot of participants, it is important to think about how to adopts me of this modern technology while preserving the investments made previously. We don’t have perfect information about how technology will continue to evolve, but anyone thinking about what to build today needs to consider their ability to pivot down the road as new technologies continue to emerge.

Is it now essential that private markets participants get on board with these tools?

Yes, it is, but the specifics will vary on a case-by-case basis. The more expansive and demanding the operation, the greater the need will be for investment and adoption of these tools and technologies, including big data warehouse platforms, modular application architecture, high speed computation and AI. More investors will be demanding more information, and portfolios will be larger and products more complex, and this means adoption needs to be more involved.

The extent to which managers get on board with these tools depends on what they really need in terms of modern tech and modern capabilities. A lot of firms could fall into the trap of overshooting and investing a lot more than they need to. Many will also fail to invest enough, and of course investment from the organisation is a lot more than just money, but also people, infrastructure, time and culture.

For a large expansive fund, it will be a big investment to adopt the tools to address complex problems, but a smaller operation may want to be a little more surgical in how much they adopt. Even so, the technology challenge does need to be addressed with modern tech, whether your fund is €300 million or €3 billion. Even a smaller fund, if they don’t think about this properly, could be building a trap around technology for the future, by making decisions now that in three years’ time will leave them with an archaic and unscalable infrastructure. It is expected that any technology transformation will embed some tech debt due to the nature of trade-offs that will need to be made, but it is also important to understand the extent of the tech debt that is being built into the system as part of the planning process.

Building a function for the future often involves wider discussion in the business to include key decision-makers. Unless you have a technology strategy in place that is consistent with the demands and expectations of your key stakeholders, you are going to encounter many challenges.

In my experience, almost every manager I speak to understands there is an organisational challenge around the technology capabilities of their institution. Even those at the beginning of the journey understand it is a complicated problem and a huge investment decision that should not be taken lightly. This journey is as much an organisational challenge as it is a technology challenge.

How can firms mitigate the risks associated with implementation?

The first risk is the risk of doing nothing. That is fairly significant, because it leaves you saddled with whatever you are doing now in a world where your competitors are surpassing you. The key question here is whether others around you are moving rapidly with advanced technology and whether you feel you are going to be at a disadvantage in terms of raising money, delivering performance, providing investor transparency and executing on decision-making if you fail to keep up.

The other extreme is the risk of diving into this with an old-school mentality, making a huge investment and simply laying out your requirements and asking someone to build you a solution. The concern there is that you expend a lot of resources to get something built and then find it is not really what you needed. Unfortunately, buyer’s remorse is not uncommon.

Another risk is building something good but not being able to maintain it. If you outsource the work and don’t really understand how it all operates, you may find out later that the total cost of ownership is exorbitant and the cost of changes is unacceptable. You want a solution that is manageable and nimble rather than unwieldy.

At Alter Domus, we work with our clients to approach tech transformations in stages, with discrete deliverables along the way. Success is users starting to see practical and usable solutions relatively quickly and often that they can begin using in their everyday work, which reinforces the project as stakeholders become more engaged.

A third mitigant is that solutions need to not be so intricately connected that the system is a monolith. It is preferable for the system to operate as a series of cogs that can be enhanced, replaced, or removed without impacting other parts of the solution. A lot of pieces need to be independent of each other but architected in a way that creates one elegant experience for the customer. Today’s technologies afford this possibility.

We are firm believers in building solutions for clients that can be maintained in a low-cost way. We don’t want our clients burdened with a system that will slow them down and prove costly to change and update.

What kind of shift in mindset is required to embed modern tech capabilities?

Going about this journey requires a cultural transformation, which needs careful change management that starts during the planning process. The possibilities and the limitations of the technology need to be understood. It begins with the leadership team to ensure that the organisation understands what is possible with technology alongside a focus on what the business really needs.

The change management aspect is also significant. The shift in mindset has to be around change being a good thing: we are going to be more efficient, and your job is going to be focused on more high-value activities. The organisation needs to communicate extremely well, manage expectations, and be ready for consistent enhancement and improvement.

What challenges with legacy systems might firms encounter and how can those be overcome?

A lot of legacy providers are on their own modernisation journeys, so it is important to understand how those systems themselves are going to be transformed, with some taking a more proactive approach than others. You may find that your legacy provider is not aligned with your technology journey. It’s wise to think about ways to adopt your modern technology and embrace it, without taking it for granted that all your requirements need to go through the legacy system. Maybe you can bypass your legacy system and find a new way to solve a problem. This would be a classic case of disintermediation for some legacy systems providers. If you think your legacy system is going to impair your ability to make decisions, it may be better to just start afresh.

But you definitely want the provider of your legacy systems, whether internally built or not, to be thinking about how they are going to modernise. If they are not, that may be a worrying sign.

What are the key elements to get right for a smooth transition to modern tech?

The key elements are communication, managing expectations and identifying early wins that will spur you on to the next phase. Breaking a problem into smaller chunks, with wins along the way, is really important. This is not a ‘one and done’; this never ends. You need to be always thinking about your total cost of ownership and what it is going to cost to not just build a new system, but also maintain it. Ask yourself all the time whether you are getting what you really want, which means being careful on your requirements, involving all your stakeholders, and being sure to build something that is really fit for purpose.

This article was originally published in PEI’s Fund Services Report.

We’re proud to share that we’ve been listed in PwC’s Observatory for Management Companies 2023 Barometer, and that this year’s results have seen our rankings increase significantly. 

In 2021, Alter Domus was ranked tenth in the list of top ten Luxembourg authorised AIFMs. The latest rankings show a notable increase; we’re now listed as fourth in the top five third-party AIFMs and eighth in the top ten third-party ManCos, as of December 2022. We’ve also been named a Top-5 ManCo managing Article 8 and 9 products.

What’s more, our Luxembourg ManCo AuM increased by 52% between December 2021 and December 2022; this represents the largest increase in our peer group.

Alter Domus offers end-to-end support for clients launching, managing and administrating regulated and unregulated investment vehicles. We offer our third-party AIFM Services in both Luxembourg and Ireland. To find out more about how we can support you in the alternatives space, please get in touch.

What challenges are faced by the alternative investment industry and how is Alter Domus helping its clients?

Generally, the alternatives industry is in robust health with demand for alternative strategies growing globally. According to Preqin, assets under management in alternatives will reach more than $23trn by the end of 2027, up from $14trn at the end of 2021. However, in the short term, there are difficult economic circumstances to be confronted, as inflation and interest rate rises are undoubtedly providing strong headwinds.

More fundamentally, we’ve recognised that our clients’ ability to scale their businesses has been hampered by outdated legacy technology, steep operational costs and tough labour conditions. As trusted partners of the world’s leading alternative investment managers, removing these obstacles to growth is our absolute focus.

Indeed, Alter Domus is in the middle of a transformational digital journey that is changing the scope, scale and impact of the solutions we offer. Where once Alter Domus was just a fund administrator, we have reimagined our business across the whole data and information chain, seamlessly connecting back to front offices through technology – our vertically integrated service offering is entirely unique in today’s market.

What role has technology played in Alter Domus’s ongoing transformation?

Our aim is to empower our clients with tech-driven solutions and tools that give a clear advantage to their investment and risk management decisions, with fully digitalised and integrated workflows, platforms and analytically ready data that hits new levels of accuracy, speed and transparency.

There are three distinct strands to our tech strategy: the acquisition of cutting-edge, data-driven companies; partnering with best-in-class platforms such as eFront and Yardi; and the proprietary development of world-class tech solutions, unmatched across our industry, from CorPro, to VBO or Agency360.

To get an idea of the scale of our tech transition, our ‘Accelerate’ programme, launched in 2020 with a $125m investment over five years, will utilise technology to transform our core activities and create new data assets for our clients across different geographies, funds and product types.

What kind of innovative new services is Alter Domus offering?

Our drive for innovation and customer value is reflected in the establishment of our data and analytics team in the last 18 months. The data and analytics team’s SaaS solutions utilize automation and machine-learning capabilities to reduce or remove issues caused by data acquisition, storage, analytics and distribution across investors’ entire portfolios.

The game changer is that the data and analytics team treats data agnostically; Alter Domus no longer must be the fund administrator for our clients to service aspects or all of their data – almost any kind of documentation needed for private credit, CLO management or by asset owners and asset managers can now be extracted, monitored, analyzed and reported on using our services. It’s a brilliant reflection of the rapid, impactful changes occurring across Alter Domus – changes from which our customers will reap benefits.

This article was originally published in The Drawdown’s Fund Administration Special Report.

Amid today’s macroeconomic uncertainty, what operational improvements should GPs make to maximize efficiency?

A greater focus on manual, repetitive jobs that take excessive time. Tasks such as downloading and processing external documents, KYC checks, payment initiations, accounting entries, and waterfall calculations are ripe for improvement by automation, outsourcing, or a combination of both. This allows managers to take advantage of the digital providers specialized in making organizations as efficient as possible. This efficiency isn’t gained by reducing costs but by providing employees with the capacity to focus on additional value-add tasks that have a greater impact.

How can these improvements result in more informed decisions?

Operational improvements alone won’t result in more informed decisions. A firm needs to have the right people. Operational improvements provided by tools like AI and automation eliminate the manual, time-consuming effort to locate data, run analysis, and compare it with the market or industry. These improvements allow teams timelier analysis without sacrificing depth, breadth, or accuracy. This in turn allows for better identification of investment and exit opportunities.

What opportunities do you see for GPs to improve productivity by investing in new technologies?

Over the past three years, there has been a focus on technology to bring people and data together. Now, there’s a focus on using data in unstructured formats effectively or running processes with decisions similar to those made by humans. Being able to identify the shared value of technologies like AI, OCR, automation, or blockchain, and continuing to invest in them allows entrepreneurs to continue to innovate.

What specialized needs do you see from different kinds of private equity funds?

Fund of funds managers are unique in that their interactions between front office, back office, middle office, and investors is predicated by the ability to source and analyze data at both the fund and portfolio company level. Therefore, one of the specialized needs for a fund of funds is the ability to efficiently download, store and process notices and statements using automation and OCR. This would allow for greater focus on analyzing the data, rather than simply retrieving.

The needs of buyout and growth managers are slightly different as they look at information provided to them at a portfolio company level, which typically lacks consistency. These managers’ needs are more focused on the ability to not only process but standardize the financial data across their portfolios to provide their teams with consistent data metrics. This is a critical step to allow for more informed and timely decisions downstream.

How can funds improve the back-to-front office infrastructure and what benefits would that yield?

The first step to improving the infrastructure is understanding the source of data and how it interacts with back-to-front office. It’s a three-legged stool: there’s data management, data extraction, and data visualization. Internally, a firm must determine where the data resides and how it can be shared across the firm among all stakeholders.

A comprehensive data management solution for any size fund manager would allow for better, more consistent, and informed decision-making, efficient handling of requests within a firm or to investors, and better monitoring of metrics at firm, fund, and investment level. At Alter Domus, we have had the unique opportunity to work alongside our clients and leverage other resources to assist in these transformational journeys and see the benefits they yield.

This article was originally published in Preqin's Private Equity Quarterly Update for Q1 2023.

The piece examines the country’s evolving needs and challenges across sectors such as recruitment and healthcare, and the unconventional investment opportunities this shift creates. Scott highlights that the Japanese government is now taking steps to boost the population by encouraging immigration—up almost 44% since 2015.

What could this increase make possible for Japan’s economy—and how can investors benefit?

The Japanese government has historically been reluctant to open those gates, but this is slowly changing.

Scott Reynolds, Country Executive Japan

This article was originally published in Private Equity International.

Alan identifies three key drivers that are opening up new opportunities for investment managers, from the continuing democratization of alternatives to a growing focus on ESG. He also examines why Luxembourg’s alternatives community is still ambitious and why the jurisdiction continues to hold significant attractions for investment managers.

Investment managers looking to raise capital in Europe have traditionally looked and will continue to look to Luxembourg to establish their fund and operating platforms.

Alan Dundon, Director, Sales & Relationship Management

This article was originally published in Delano.

Following a successful migration of the fund administration role on Longship Fund I and Longship Fund II to Alter Domus in 2022, our Guernsey fund services team has been working closely with Longship and its advisers to deliver this closing.

With commitments raised of NOK2.1bn, Longship achieved the hard cap for their third fund in less than four months, with strong demand from institutional investors, including a 100% re-up rate from existing Longship investors.

In selecting Alter Domus in 2022, Longship were promised both a smooth migration process and an efficient set-up of new funds. Alter Domus have delivered on both.

Erik Rian Johannessen, CFO at Longship

The Alter Domus team comprised Tom Amy (Country Executive), Jordan Smith and Sarah Lacey (Senior Managers) and Raitis Darags (Manager).

We are thrilled to have the opportunity to now work with Longship across their three active funds. Using technology effectively, our fund services professionals have a depth of experience in supporting client migrations and delivering consistent, high standards of ongoing administration services.

Tom Amy, Country Executive Guernsey at Alter Domus

Teams talk about digital transformation, but many struggle to embrace it. It can be costly, time consuming, and the sheer amount of legacy technology that needs addressing can be overwhelming. Yet digital transformation doesn’t always require a large time or financial investment to start. At Alter Domus, we’ve established a transformation playbook to effectively jumpstart our digital transformation journey, building and revamping systems and applications rapidly, while being methodical- and most critically – customer focused.

A technique employed at Alter Domus is Rapid prototyping – an approach that allows teams to test a product idea quickly and inexpensively with clients to gain early insights into their pain points and how to solution them. There are multiple ways to prototype depending on need and time available – a throwaway prototype made in a couple hours to a full five-day Design Sprint, requiring a team to clear calendars, roll up their sleeves and make decisions together quickly.

Case study: Document tracker to DealFact

As data in the alternatives marketplace compounds and outgrows the spreadsheet, the Data & Analytics team saw an opportunity for a SaaS application that stores and manages all documents specified in a credit agreement between a borrower and lender.

Lenders are required to receive and keep track of important financial information from their borrowers, and that process was typically being performed via email and local spreadsheets, a manual process that required multiple follow ups and chasing, as there was no one place where all the documents were stored, making it very challenging for the lender to determine if they were receiving all the documentation outlined in the credit agreement.

The team started quickly building a prototype leveraging an existing internal tool that allowed users to upload and store all their documents in one place, giving them a clear picture of what’s been submitted and what was missing. We then met with domain experts from other areas within Alter Domus that managed Credit Agreements on behalf of clients to understand that workflow and the requirements needed.

It was crucial that the initial set of requirements reflected only the core functionality, enabling the developers to move with speed while at the same time putting a compelling solution in front of our clients. After two weeks of prototyping, the initial app was previewed to product strategy, members of the sales team, and select prospects to elicit feedback. The key was the development team was given maximum space to build the initial app before fully deciding functionality, and that the process was iterative, enabling the development to continuously move with velocity.

One of the more critical activities during this phase was partnering with the Commercial team to ensure that the prototype told a story that aligned with their view of what the market needs and resonated with prospects. We quickly validated the idea and affirmed the potential market need opportunity at hand, so the team moved to a full Design Sprint to dive deeper into the client needs and build out a more polished interactive prototype to share with existing clients.

Google Ventures notably developed the Design Sprint process to help clients validate their product hypothesis before investing in the actual product build. This approach also condenses the time-consuming efforts of understanding requirements and getting customer feedback on a realistic prototype – commonly a 3-6 month process – into one week.

Here’s an overview: 

At the conclusion of the sprint, customer feedback would dictate if the idea is viable or not. Some teams find out after a sprint that the idea doesn’t have an audience. For us it was clear that our prototype resonated with interviewees, giving us the go-ahead to transition from high fidelity prototype to building an MVP Product.

The requirements and ideas gathered during prototyping became the basis for a product backlog. Following Agile Development methodology, our product, design, and development teams prioritized this backlog and built a validated idea into a shippable product in roughly seven months. DealFact is currently available for clients.

Highlights

• The Quant team built an application that tracked Loan Trade Settlement times, giving the Loan Trade Settlement team and their clients key insights into how to more effectively manage trade settlement.
• In a week, our Quant team built a dashboard that highlighted our financial spreading capabilities.
• The Credit Vision team used a Design Sprint to gain alignment on critical new features and reimagine the user experience for its next generation relaunch (pending Q3 launch).
• Recognizing the need for a centralized portal for our client-facing products, a Design Sprint was held in January for AD Storefront, to broaden our clients’ awareness of all our products and services, and act as the single “front door” for our clients to log into their respective products (pending Q2 launch).