The alternatives landscape is changing. While once reserved for institutional investors, pension funds and high-net-worth individuals, it is now opening its doors through the democratisation of alternative funds. A coming together of worlds so to speak, which are combining and innovating to create a hybrid world of liquid and illiquid funds, which are both now open to individual investors. 

There are a number of trends and drivers in the market that have been behind the emergence of these hybrid funds. Firstly, monetary tightening is resulting in institutional money pulling back from the market. Private asset AUM continues to grow, however traditional LPs are reducing new commitments with global fundraising declining by c. 10% in 2022, followed by further declines so far in 2023 – GPs have been forced to pursue alternative sources of capital to support fundraising.

At the same time, a new demographic of investor is seeking to gain access to such markets. While private asset funds have long been used by institutional investors, due to regulatory restrictions, private individuals have been limited in their ability to allocate funds to the asset class. As this portion of the market is becoming more sophisticated and educated, individuals’ appetite for private asset funds is growing as they recognize that gives them more options to build a more diversified portfolio. While allocations by this investor group accounted for 9% of Alternative AUM in 2017, that climbed to 16% in 2022, a 165% increase in AUM.

Hybrid funds have the traditional alternative fund strategies, while also incorporating open-end fund features and accepting individual investors, with the goal of bridging the gap between individual investors and private assets. Within the industry, that’s often described as the ‘democratization’ of alternative funds, with Bain forecasting that individual wealth allocated to alternative investments will increase 12% annually over the next decade while institutional capital will grow by 8% annually over the same period. We have seen how large managers are directing their funds towards retail clients, with Blackstone expanding retail capital from $200 billion to $500 billion, while KKR are looking to raise up to 50 per cent of their new capital from private wealth and Apollo are looking to raise $50 billion in retail capital from 2022-26.

New regulations pulling in the same direction as the market 

Regulation is at the forefront of the market’s needs and is allowing the market to deliver these types of products to individual investors at the very time it’s looking to do so. 

In the UK, the Financial Conduct Authority has developed the open-ended Long-Term Asset Funds, or LTAFs, while in the US the term ‘accredited investors’ has been defined, enabling sophisticated investors who have a reduced need for protection to invest in alternative products. In Europe, welcomed enhancements to the European Long-Term Investment Fund, or ELTIF, came into effect in January this year, replacing the existing ELTIF regime. We will be exploring ELTIF 2.0 in greater detail in the next two articles in the series.  

Now is the time to take advantage 

This new regulatory landscape is providing a toolbox for managers, enabling them to develop products and expertise for the retail network. At Alter Domus, we are already working with managers to capitalize on these developments while overcoming the challenges that come with it, which we will be looking at in the fourth and final article.

Read part one of this four-part series here.

There seems to be a misconception among non-EU alternative fund managers that Europe is a complex and closed market for raising fresh capital.

Those managers are being advised that reverse solicitation is no longer an option following the August 2021 changes to the AIFMD Marketing Rules. This is rightly so in our opinion, as it should never have been considered a marketing strategy in the first place. That being said, the knock-on effect is that they are no longer actively considering raising capital in Europe.

What is clear to us is that such managers aren’t being fully made aware that there are other marketing solutions for their funds. ‘If reverse solicitation is no longer an option,’ they say to us, ‘why would I  spend the time and effort to try raise capital in Europe?’

The immediate answer we give to that question: pre-marketing.

Once we raise the subject of pre-marketing – and how it is a far more cost-efficient and timely way of engaging with prospective investors before launching a fund – we sense that managers become very interested. It’s at that point that they often start to reconsider what opportunities there may be across Europe.

Clarity for fund managers: the rules about pre-marketing 

The current EU rules around the pre-marketing of alternative investment funds have been live since August 2021. Previously, what constituted pre-marketing – which was sometimes known as ‘soft marketing’ – hadn’t been universally defined across the EU member states. Different rules in different jurisdictions meant the process was considerably more complex, with fund managers often needing legal advice about what was allowed in each country.

Much of that complexity has been removed. The introduction of harmonized, EU-wide, pre-marketing rules has provided greater clarity for fund managers who are looking to navigate this market and need to understand what preliminary promotional activities are permitted before establishing a fund.

What is permitted: the definition of pre-marketing in Europe 

Across all EU member states, pre-marketing is defined as the provision of information on investment ideas and strategies, as well as the track record of the manager. That information is provided by, the authorised representative, to investors in the EU to test their interest in a fund that has not yet been established or has been established but has not at this stage been notified for active marketing. To comply with the rules, pre-marketing must not include information that could amount to an offer or a placement to the investor.

To engage into pre-marketing discussions with potential investors, alternative managers simply need to select an AIFM they would like to work with. In-turn the AIFM files a notification with their local regulator on behalf of the manager. The notification details the intent to launch a fund and their wish to initiate discussions with potential investors in the countries listed in the notification (passporting rights).

Cost efficient and faster: why fund managers are using pre-marketing 

Fund managers are finding that with pre-marketing, the previous cost barriers to initiate discussions and test the market – which could run into hundreds of thousands of Euros – are no longer there. They’re able to gauge investor interest first before incurring the expense of launching the fund.

Pre-marketing is also faster. Previously, managers had to first go through the process of establishing the fund or vehicle. Then they had to appoint service providers including the AIFM, who in turn had to notify the regulator in each of the countries in which they wanted to commence marketing. Obtaining regulatory approval from all the relevant authorities could take up to an additional 21 days following launch of the fund.

Under the current rules, that’s no longer necessary. A Pre-marketing arrangement takes just a couple of weeks to set up. All that is needed is the submission of notification to the relevant regulator, but it does not require formal approval. Once activated you’re able to test the appetite for your strategy with investors across Europe. Once you’re confident to proceed and you feel you have sufficient interest, you can go ahead and establish your fund. This could also be a process which can run in parallel with pre-marketing.

Further regulatory enhancements and the emergence of ELTIF 2.0

Any fund manager who is considering raising capital in Europe should be aware that pre-marketing is only permitted when approaching professional or well-informed investors. When used in conjunction with the passporting rights that come with a pre-marketing arrangement, a manager can register in one EU member state, to pre-market across all member states, and now reach a broader range of potential investors while minimizing initial outlay.  Pre-marketing and marketing passport rights will also apply to the new adaptation of the existing European Long Term Investment Fund regime, known as ELTIF 2.0, when it comes into effect in January next year. These enhancements to ELTIF 2.0 will also open access to a retail network eligible to invest in ELTIF 2.0 funds.

A new market of private individuals and wealth managers, comes at a time when there has been a decline in commitments from traditional LPs and institutional investors to GPs and managers.

Over the remaining three articles in this four-part series, we will take you through the new adaptations of the ELTIF 2.0 framework. We will also cover key considerations you may wish to address when looking to raise capital in Europe and how we are preparing to serve our clients as the fundraising landscape in Europe evolves.

Learn more about Alter Domus’ AIFM Services and Private Equity Solutions.

INREV has recently released an updated version of its investor reporting templates, the Standard Data Delivery Sheet (SDDS), and has also introduced a brand new ESG SDDS. Both updates are meant to better align with EU real estate industry trends and investor demands. As a member of INREV, Alter Domus strongly supports this initiative and can assist clients with the implementation of such investor reporting.

Our very own Stephane Campori, who is a member of the INREV Reporting Committee, will be attending the INREV Autumn Conference in Amsterdam on 21 November. If you’d like to learn more about the updated reporting templates, and how Alter Domus can support you with implementation, reach out to Stephane before the conference to arrange a meeting.

Have you ever wondered how the current state of debt, lending trends, and the impact of new capital sources are impacting real estate investment?  Don’t miss your chance to find out! 

Benay Kirk, Michael Gregori, Aris Halikias, Brett Montembeault and Brandon Ellrich will be attending the NCREIF Fall Conference in Orlando from November 13-16. 

This conference will provide an insightful conversation about the current state of the real estate market and how to successfully invest in 2024. Don’t miss out on this opportunity to learn where to seize opportunities and exercise caution for successful investments. Register now and join us in Orlando!

With the number of fund administrator firms growing by 10% since 2018, how can companies stand out in an increasingly crowded market to provide added value to their clients?

For Jessica Mead, Regional Executive North America at Alter Domus, the answer lies in successfully blending technology with human expertise, with co-sourcing an increasingly popular way to marry the two.

Jessica shared her thoughts during a service provider webinar Oct. 25 sponsored by investment data company Preqin, where she joined panelists Peter Naismith, a partner in law firm Schulte Roth & Zabel, and Meera Savjani, Fund CFO at Arrow Capital.

Co-sourcing model: integrating expertise and technology

While information has always been key to strategic decision-making, Jessica said that GPs are under increased pressure from their investors to provide more precise and transparent data, and to do it in real-time. Service providers who can meet those demands are going to be more successful, she believes, and co-sourcing may be a way to get there.

In the co-sourcing model, the GP maintains ownership of their in-house IT system and data while their service provider works in the environment alongside other departments. Co-sourcing helps GPs meet the shortened reporting timelines requested by investors yet maintain, or even improve, data accuracy.

It can also improve standardization, Jessica said.

“While LPs’ demands can make standardized reporting difficult to achieve, co-sourcing with an experienced service provider means GPs can still achieve industry best practice standards while meeting customized reporting demands,” Jessica explained.

As well as technological expertise, co-sourcing offers another important and complementary client benefit – systems and sectoral expertise. Marrying technology with this expertise, as well as finding the right culture fit, is at the heart of the co-sourcing concept.

In response to Preqin’s claim that AI is being included in due diligence questionnaires for fund administration services, Jessica said she hasn’t seen much of that so far. She noted that Alter Domus is already ahead of the trend by developing tools in-house across the company’s suite of services to streamline some of the more repetitive functions. She also noted that, by automating more and more areas of fund admin, firms will not only need to provide that data output in real time to clients, they will also need to offer value-added expertise to stand out from the pack.

Finally, looking ahead to 2024, Jessica predicted there will be further consolidation in both the service provider and the manager space.

Learn more about Alter Domus’ Strategic Co-Sourcing and Outsourcing services.

What are some of the most practical applications of artificial intelligence in the funds industry? Get the answer to this question and more by joining James McEvoy and Conor O’Callaghan on 30 November as they attend the Irish Funds UK Symposium in London. The conference will also cover the ELTIF 2.0 and its implications, as well as the UK Overseas Funds Regime.

Keen to find out how Alter Domus is using AI to augment fund servicing, and how we can support your strategy amid ongoing regulatory change? Get in touch with our team today!

Discover how the latest ELTIF regulations are poised to reshape Luxembourg’s private markets by joining Alan Dundon, Dirk Sanden, and Sebastien Collard at the ALFI’s Private Assets Conference in Luxembourg from November 28-29. The event will also delve into recent advancements in private asset servicing and tech solutions for fund reporting.

Engage with our team at the conference to explore how to future-proof your fund and leverage emerging market opportunities with our tailored solutions.

How are firms like Alter Domus putting cutting-edge AI automaton to work? Find out at EY and Pega’s joint event at EY Luxembourg on 7 November. Alter Domus’ Danilo McGarry will be speaking about AI, lessons learned, challenges, and his experience with AI at Alter Domus in a lively panel discussion.

If you’re keen to hear more about state of the art in automation and the power of AI from a panel of leading experts, be sure to register for the hybrid event, which is also being held online.

Real estate businesses, like those in other sectors, know that their performance will increasingly depend on their ability to gather and analyze data. But few have yet mastered the processes, and identified the tools, that will allow them to do so in a cost-effective manner.

A common pitfall is to begin with the assumption that the answer is solely a matter of buying or building technology platforms, observes Gus Harris, head of data and analytics at fund administrator Alter Domus. Instead, he argues, technology should be viewed as an enabler for the smooth flow of data from its source to the decision-makers that utilize it, a process that can be facilitated by a trusted back-office provider.

What are the most pressing challenges for global investment managers’ and investors’ back and middle offices?

The market is expanding. As portfolios grow, managing those portfolios becomes more complicated. Allocating to a wider variety of alternative investment strategies, the scale in AUM that brings, and the intricacies of managing such assets internationally for a diversified client base that demands ever more nuanced risk-return profiles from their investments, increases cost and complexity.

Some of the data flowing back to investors from their portfolios may have been processed manually in the past, but those solutions are just not scalable today. Solutions that may have worked when asset managers had $1 billion under management are no longer effective when they have $30 billion or $50 billion.

Meanwhile, technology has matured significantly. The ability to automate, and to analyze data more efficiently has been greatly facilitated over the past 10 years, and now it is growing exponentially with the introduction of AI and other cutting-edge technologies. If managers fail to harness that capability, it affects their ability to grow scale, because the cost of doing so becomes exorbitant. In addition, if they are too expensive compared to their peers, investors will turn to more efficient managers that can provide them with more and better-quality information.

Asset managers that can charge lower fees and provide better data because they have smartly automated their operations will win out. We have reached the point where managing data is almost an existential issue for managers that want to grow scale.

What are the key considerations for managers seeking to take control of their data?

The first is accuracy and completeness. Data from different sources and contexts must be normalized so that it is directly comparable. It must also be gathered in a timely manner. The second challenge is scale. Whatever data solution a manager has in place needs to be able to scale vertically, so that they can add on more of what they want in a cost-efficient and timely way. It also needs to be able to scale horizontally, as the manager invests in new types of instruments. One of the current features of the market is how many new flavors of investment solution are being added all the time.

A third consideration is efficiency and cost-effectiveness. We hear from our clients that software providers will sometimes show them a solution that initially looks good, but when they start to use it is too costly to get the accurate, complete, normalized data that they need. Agility is also vital – the ability to build around the data solution. It cannot be built in isolation. To benefit from data in decision-making, market participants need to think about how they will use it, building solutions that can be incorporated into their corporate identity and asset management processes to make them more efficient. They need to consider the ecosystem that is going to support and live around the data solution.

Finally, it must be usable. Data solutions should be designed to help investors to make decisions when they are considering what to buy or sell, without them needing to be technologically-savvy. Using data better is not a technology problem, it is a decision-making problem. Technology is critical to solving it, but getting the design of that technology right, and building a supporting ecosystem around it, requires a combination of people and technology.

To what extent has the real estate industry embraced the digitization of private markets fund administration?

The good news is the industry sees the need. The market is sold on the idea that we must modernize and move to next generation capabilities to grow the alternative marketplace. Different providers, investors and managers are at different stages of the maturation process. There are not many sophisticated investors and managers out there who believe that the status quo as it was a couple of years ago is sufficient. Some have moved faster than others, and frankly, that’s fine.

What you don’t want to do is jump in with a solution that that you will regret later. We see a lot of that among clients who made technology-related decisions a year or two ago. Being a pioneer or first mover may not always be best, unless you first think through how it will work in practice. The pitfall is failing to understand when you make these decisions, what you are going to get at the other end, and how you are going to maintain and scale it.

What options are open to managers looking to improve their processes for managing data?

One is to work with a trusted back-office provider, especially one that has made a sizable investment and built out capabilities the way Alter Domus has over the past couple of years. Another option is for managers to do it in-house. That is a very challenging task. It is extremely expensive and keeping up with market standards may be difficult. Having said that, a lot of our clients are building modern solutions for their workflow. The two approaches are not mutually exclusive. A manager can have their admin provider be a big part of it, while also making changes themselves. Both need to take the journey at the same time and build solutions together.

A third option is for the manager to piece together various third-party solutions, licensing a variety of tools and applications from various providers and merging them into one integrated solution. That presents two major challenges. Firstly, they have effectively recharacterized the challenge as a technological challenge by hiring software providers that lack critical domain expertise. Therefore, the data they provide may not be as accurate and complete as the manager would desire. They will need their own team in place to make it fit for purpose. Secondly, they will have the extremely difficult job of connecting all the different solutions. Trying to solve those problems with several individual software providers can get extremely expensive.

How has Alter Domus, faced with more clients, more data, and more complex mandates, sought to meet those challenges?

We have made large investments in automating and scaling our capabilities to support our clients through our Accelerate program, which began two years ago. We have greatly enhanced the capabilities of our applications, workflows with our clients, and the delivery of data and analytic solutions to them. We are locked arm-in-arm with a lot of our clients on that journey.

Over that period, we have been doing the foundational work to aggregate data, tag it, build workflows, tools, engines, and analytics, all sitting underneath our storefront Vega platform. That provides a single, centralized platform where clients can access all the tech solutions they currently use and “shop” for others. And within Vega, if clients want an aggregated view of the data across their portfolios, they can access that through our Gateway application. That allows them to drill through all their funds to look at exposures and correlations.

How do you expect digital platforms to evolve in the future? Could artificial intelligence have an impact in this area?

Over the next couple of years, the market will be very busy tackling the challenges of data accuracy, scalability, efficiency, agility and usefulness. And along the way, technology will continue to evolve. At Alter Domus, while the data we are bringing into the Vega storefront is substantial, it is probably not complete.

As they become more successful at managing their data, clients will see the potential to keep growing these platforms, so that they could eventually become the single source of truth, lock stock and barrel, across their organizations. We are already incorporating elements of AI into our solutions, for document classification and document data extraction, for example.

As we get better at this, AI could be used to create widgets and applications that sit within the data ecosystem, providing tailored analytics and reports. However, it is critical to understand that without a clear focus and direction for using AI, organizations could just be spending a lot of time and money on theoretical impractical solutions. Our approach is to look for short term wins that show how AI could be part of the solution.

How can applying digital solutions benefit investors, and administrators working on their behalf?

Investors want to see performance. Employing digital solutions can help them to generate greater returns at a certain level of risk, as well as fine-tuning that risk and better identifying which risk they want to take. That is because they can perform analysis that they were not able to perform before, drilling through to the risk factors: credit risk, property risk, demographic risk.

That capability allows investors to greatly improve the performance of their portfolio. As well as improving performance at the individual asset level, you can also apply analysis across the portfolio in a way that has been difficult to do in private alternative markets up to now. It is very exciting what this opens for investors, and I am very confident we are going to get there as an industry.

This article was originally published in PERE’s Technology Report.

Alter Domus, a leading provider of tech-enabled fund administration, private debt, and corporate services for the alternative investment industry, has appointed Michael Janiszewski as its new Chief Operating Officer.

In this role, Michael will report to Doug Hart, Alter Domus Chief Executive Officer, and will also join Alter Domus’ Group Executive Board.

Michael brings significant executive experience in leading the operations of global organizations. His successful 20+ year track record spans business & strategy development, business transformation, operational excellence, and digital innovation. Mike joins Alter Domus from BNY Mellon’s Securities Services and Digital business, where he served as Chief Operating Officer.

Alter Domus CEO Doug Hart said: “We’re excited to combine Michael’s expansive background with Alter Domus’ industry leading private markets services platform. Our aligned vision of the future of alternative investment operations will accelerate the Company’s client experience initiatives day-one.”

Following his appointment, Michael Janiszewski, Alter Domus Chief Operating Officer, said: “I am proud to join Alter Domus and am excited by the bright future ahead of our organization. I am looking forward to partnering with the talented and experienced group of executive leaders on our Group Executive Board, as well as the talented professionals across Alter Domus.”

Michael holds a BA in Electrical Engineering and a Certificate in Applications of Computing from Princeton University, and an MBA in Finance, Accounting, Strategy, and Entrepreneurship from the University of Chicago Booth School of Business.