Analysis

Data, data, everywhere: how investors in alternatives can scale the information mountain


technology colleagues analyzing data on screen

The last decade has seen investment in private capital markets shift from a niche strategy to a core part of the fund playbook for asset owners of all types. Be it private equity, private debt, or real assets, the reasons why this investment shift has occurred are abundantly clear.

Firstly, investors can balance the overall quality and strength of their portfolio through diversification across these asset classes, which have broadly been providing above average returns. Secondly, the stock and bond markets have proved to be volatile hunting grounds, and alternative asset classes have proven to be a great hedge against this.

A long way up to the data peak

While they may differ in terms of scale and focus, wealth management arms of multi-national banks, multi-family focused managers, pension funds, and college endowments have all found success in the alternative arena. But as is often the case, success can be a double-edged sword and though these investors vary as institutions, they all face a common – and ever increasing – problem: data management.

As the phrase goes, for every action there’s an equal and opposite reaction, and as investors have increased the volume and size of funds within alt markets, the volume of data flowing in from asset managers has become mountainous. In conversations we here at Alter Domus have had with our clients, the story is the same: the data that comes their way is largely unstructured, in non-standard formats, and is generally not digitized.

This manifests itself in multiple problematic ways; not only is the operational task of aggregating and normalizing this data costly, slow, and labor intensive, but the manual nature of the process diminishes levels of accuracy.

No base camp for investors

A chief investment officer of a well-respected large multi-family investment house recently highlighted how the manual collation and fragmented delivery of data affects what happens in the front office on the front line of analysis.

“The challenge we face is that, as this piece-meal data flows in, we aren’t getting a clear picture of risk and opportunity across our entire portfolio. We need to trust our data. And that’s very hard to do that when there’s a chain of processes with far too many potential points of failure.”

These data problems are further compounded by everything from compliance and data security to regulatory demands. Factor in an over-reliance on legacy tools, from spreadsheets to emails to out-of-date accounting systems, and the multiple sources data flows in from, and the issue is deepened further still.

Ultimately, with allocations to alts rising, investors need to maintain their competitive edge. That ‘edge’ is the outcome of having a clear view of the operational performance of companies and assets within their portfolio, which in turn informs their current and future decision making.

Expensive Sherpas for the expedition

It would also be remiss not to talk about the labor issues that have developed because of the increase of capital flows into alternative markets. Outside of hiring in more investment professionals as funds scale, the operations, finance, and support teams that surround them to deal with data have exponentially grown too.

It’s been well documented that the labor market for talent in these areas has become ultra-competitive, meaning hiring and staffing costs have risen accordingly. Finding people with the requisite data skillset and understanding of markets is set to be an ongoing challenge.

Conquering the data Everest

So, what’s the solution to dealing with the data? The answer is two-fold; Firstly, businesses must employ and utilise a combination of market data knowledge and market leading technology. Secondly, companies need to look beyond their own walls to acquire that transformative combination. Put simply, building your own technology solutions, when your primary focus should be on your investment strategies, is prohibitively expensive, and time consuming to run, maintain, and constantly upgrade.

That’s why it’s imperative to partner with the right third parties who have the people and technology ready to go. And that’s also why Alter Domus has invested in building first class solutions that have been specifically designed to deal with asset owners’ data dilemmas.

The view from the top

Alter Domus Digitize – Investor Statements solution is designed to ingest any volume of complex investor documents, from capital calls to distribution notices and capital account statements, and to provide our clients with instantaneous access to actionable data. This managed service uses a combination of people, process, and automated technology to extract, validate, and deliver critical datasets to your preferred reporting systems downstream.

So how does it work?  Our clients’ fund managers distribute source documents to us via our workflow tool either directly or through their linked asset manager / GP portal. Our data team is notified to retrieve documents from the portal. Mailroom sends data to our automated extraction technology platform. Trained on hundreds of thousands of documents, it leverages machine learning (text and geographic based) to find the correct information in the documents. Data is pulled back into our workflow tool, saved, calibrated, and mapped to a list of fields which also standardizes and normalizes the data in the Alter Domus data platform. Both our automated system and Data operations team users perform double-blind checks and reconcile in case of any mismatches, ensuring both accuracy and quality of output.  An external transaction ID is created for audit trail. The workflow tool pushes data through to your reporting or other downstream systems.

Beyond the benefits in terms of costs, driving clear operational efficiencies, and changing our clients’ ability to scale their funds at will, receiving structured, digitized information at speed removes the impaired view of their portfolio that many investors have. With data now acting as a source of truth, from input to output, and across back to front offices, investors’ understanding of risk and performance across funds and assets is fundamentally transformed.  

Ultimately, we believe that investing in data excellence is the best way for investors to turn those data mountains into molehills. Find out how we can help you here.

Contacts

Alter Domus:
Brad Pratt
[email protected]


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