As investments in alternative assets have grown over the years, the unscalable manual processes involved in administering this asset class have become unsustainable. Demand for faster and more efficient processing has driven technology to begin catching up.
So what solutions are out there in today’s landscape? Olmstead has dived into the capabilities of middle office service providers, fund administrators, and technology vendors. Let’s review some of the most burdensome alternative investment processes and what today’s solutions entail.
Subscription Management
Making an investment into an alternative fund means filling out documentation which often requires dozens of data inputs. On top of that, maintaining current KYC/AML information is a logistical burden, particularly for firms managing alternative portfolios for many client investors. And keeping track of the status of your transactions is a whole other problem.
Many service providers now leverage tools to generate hedge fund subscription and private equity commitment templates. These templates are automatically populated from a client master to eliminate most of the manual data entry. To maintain KYC/AML documentation, repositories track expiration dates, and alerts occur in advance of a document going stale. For oversight, dashboards are provided so the status of each transaction can be seen at any given time, and any issues causing a delay can quickly be addressed.
While there are still manual aspects to this process, these tools help mitigate the risk of manual errors, reduce delays, and provide transparency.
Statement Collection
Investing in alternatives also means managing a sea of PDF files flowing in from each fund manager, from capital call and distribution notices to valuation statements. This results in significant time spent by staff as well as risk of missing an important notice.
Many service providers have implemented tools enabling data collection to be automated. Documents arriving via email are automatically classified for handling. Shared portals used by the GP community are leveraged to directly extract information. For proprietary portals, some providers leverage document collection teams to manually source these documents. Others use bots and APIs to establish connectivity to the portals, pinging portals throughout the day to know when to auto-extract new documentation.
Some even provide their own portal for GPs to upload and submit their data electronically. Participating GPs can automatically generate the output from their system to submit data for the specific investors being requested.
Statement Ingestion & Processing
Automated collection of statements is great, but then what? Good news: You no longer need to manually input the information from the PDF. Using flexible mapping and importing tools, documents in a variety of formats can be ingested automatically.
Once documents are collected, data is ingested using natural language processing and machine learning-based AI tools that digitize and extract the necessary information. This technology is used for document types ranging from capital call notices to valuation statements and beyond. The data is translated into a normalized data model. Service providers can then automatically load that data into their platforms for immediate use.
Automated data quality controls are applied to ingested data. And as artificial intelligence is still imperfect, a human verification process nearly always occurs post-ingestion as well.
Investment Data Management
The most data-intensive aspect of managing alternative assets often comes with analyzing the underlying investments of your funds. Investment teams must have a clear view into the funds within their portfolios to manage asset class allocations, ESG guardrails, exposures, and other portfolio-specific requirements.
Fortunately, there are vendors which can aggregate and supply the underlying asset data of alternative funds, as well as for ETFs, mutual funds, and other traditional funds. Vendors not only source and normalize the data, but also offer analytics & reporting solutions for that data.
These data services provide a foundation for total portfolio look-through capabilities and enable a controlled, multi-asset class analysis across public and private markets within a single platform.
If you’re still managing your alternative asset processing in-house, reach out to us to learn more about industry solutions and how you can benefit from them.