STATE OF PLAY
COMMENT:
TOP 5 DATA TRENDS REVOLUTIONISING FUND OPERATIONS
8 minute read time
Tom Bennett
HEAD OF INNOVATION – AZTEC GROUP
Charlotte Light
CHIEF TECHNOLOGY OFFICER – AZTEC GROUP
STATE OF PLAY
COMMENT:
TOP 5 DATA TRENDS REVOLUTIONISING FUND OPERATIONS
8 minute read time
Tom Bennett, Head of Innovation – Aztec Group
Charlotte Light, Chief Technology Officer – Aztec Group
To quote its dictionary definition, ‘data’ is information collected in the pursuit of knowledge, empowering its owner to make decisions based on real facts. In this article, Tom Bennett and Charlotte Light consider the top five data trends shaping fund operations, and outline some of the challenges and opportunities our clients are facing when it comes to data.
1 Instant portfolio data on demand
There’s a growing desire among LPs to receive real-time data from fund managers. While data-on-demand hasn’t always been viewed as essential when it comes to private market investments, it’s clear that LPs increasingly want to at least have the option. And it's little wonder; with the acceleration of data-on-demand in other demographics including online banking, healthcare provision, and insurance claim apps to mention a few, LPs are keen to access their portfolio data as and when they choose.
The technology required by GPs to provide data-on-demand can be complex and costly, and that’s before assembling a team experienced enough to deal with the tech and to provide insights quickly, accurately and securely to investors. This is one of the reasons GPs often enlist the services of a third-party fund administrator, to assist with their data capture and reporting requirements.
Third-party administrators will have greater access to market-leading technology, underlying accounting systems and investor portals, with experienced teams assembled to deliver their clients' data needs, as quickly as they require it.
There are several new platforms available in the market which enable real-time data capture and sharing, including Goji, Flow and Platform Eleven. These platforms are designed to capture golden truth information in a structured way from the very beginning of the fund set up as well as enabling much more digitalised workflows for onboarding, subscriptions, and reporting. Despite this tech arriving in the last 2-3 years, the social fabric of our industry still needs to be unpicked and adapted in order to realise the gains made available by these types of tools. A technology-enabled service does not need to come at the cost of client experience, quite the opposite in fact. As more investors expect experiences to match those of the apps that they use in their own lives, it could be argued that this is a direction we must all be moving in.
2 ESG data collection
With the recent arrival of Sustainable Finance Disclosure Regulations (SFDR), and the need, from June 2023, to report funds’ Principal Adverse Impact (PAI) indicators – not to mention a general shift in mindset when it comes to ESG and sustainable investing – GPs are having to rethink how they’ll collect the necessary ESG data from their portfolio companies, and report to investors.
Many have decided to tackle this in-house by hiring ESG specialists, whose job it is to contact portfolio companies to retrieve the required information. However, the bigger the funds, the more difficult it is for the GPs to hire the appropriate number of staff to collect this data, especially when they don’t have the tools to assist with this data collection. Instead, many GPs have chosen to outsource this function to third parties, to ESG data collection firms, ESG consultancies or their own fund administrators.
One solution GPs could consider is partnering with a tech provider like Worldfavor, who offer a sustainability reporting platform allowing clients to follow up on portfolio companies, comply with regulations and acquire a fully sustainable supply chain. These platforms allow clients to monitor their portfolios’ ESG performance, collect and manage the data needed to align with EU Taxonomy and frameworks including SFDR, GHG, SDGs, TCFD and more, and provide transparent communication channels between LPs, GPs and other key stakeholders.
2 ESG data collection
With the recent arrival of Sustainable Finance Disclosure Regulations (SFDR), and the need, from June 2023, to report funds’ Principal Adverse Impact (PAI) indicators – not to mention a general shift in mindset when it comes to ESG and sustainable investing – GPs are having to rethink how they’ll collect the necessary ESG data from their portfolio companies, and report to investors.
Many have decided to tackle this in-house by hiring ESG specialists, whose job it is to contact portfolio companies to retrieve the required information. However, the bigger the funds, the more difficult it is for the GPs to hire the appropriate number of staff to collect this data, especially when they don’t have the tools to assist with this data collection. Instead, many GPs have chosen to outsource this function to third parties, to ESG data collection firms, ESG consultancies or their own fund administrators.
One solution GPs could consider is partnering with a tech provider like Worldfavor, who offer a sustainability reporting platform allowing clients to follow up on portfolio companies, comply with regulations and acquire a fully sustainable supply chain. These platforms allow clients to monitor their portfolios’ ESG performance, collect and manage the data needed to align with EU Taxonomy and frameworks including SFDR, GHG, SDGs, TCFD and more, and provide transparent communication channels between LPs, GPs and other key stakeholders.
"The more information being gathered, the more granular the insights can become, and this is true in private markets as much as any other industry."
3 Hyper-personalisation
With so many of our digital interactions personalised to our personal tastes and preferences, we’re seeing more targeted ads and products pushed towards us on a daily basis. From stores building creative solutions on how to best recommend products (such as Ocado and StitchFix in the UK), to global banking apps offering tailored solutions to clients based on their location in the world, to social media apps which suddenly place adverts on timelines, following one seemingly trivial Google search.
The more information being gathered, the more granular the insights can become, and this is true in private markets as much as any other industry. One of the main opportunities for our Industry is to bring more of the investment lifecycle ‘online’ so that the data can be used to create more meaningful experiences.
Investing in anything at the moment is largely an investor driven approach with unintelligent filtering and recommendations. There is a great opportunity to attract appropriate investors to investment products in a highly personalised and targeted way, using recommendation engines. This would save time and money for GPs, as they would now be able to predict the needs of their investors on levels never seen before, by utilising the insights of their investor data collection.
Investors on the other hand are now able to feel the client-centric approach without being bombarded with products that might not necessarily pose any interest to them. Fund administrators are again able to help GPs and investors in this space as they often have the relevant tools to allow information to be gathered and analysed, informing the GPs on best-practice. A trend to look out for is the growing number of Marketplace providers entering the market. They offer a great way to start the journey towards more personalised offerings.
4 Regulatory drive for transparency and disclosures
New regulatory requirements continue to change the private markets landscape. As well as the ever-evolving needs of LPs to receive more information on the performance of their portfolio(s), regulators are also busy launching new disclosure regime proposals and updating current policies, further complicating GPs’ data requirements.
Since Brexit, the FCA has created its own sustainable investment policies and adjusted relevant EU regulations. The EU meanwhile has published the proposed changes to the current Alternative Investment Fund Managers Directive (now AIFMD II), which will also lead to increased reporting requirements for fund managers. Similar movements are happening in the US, where the SEC has announced a series of proposals requiring GPs to share data more frequently.
Whatever a funds’ jurisdiction, the regulatory changes seem to mean more work is required for GPs when it comes to sharing data with both investors and regulators. These challenges can be eased through automation, and the gathering and sharing of data with both clients and regulatory bodies. A key focus area for every player in this market is having a robust data strategy that details how an organisation will respond to growing demands for data collection, management and transparency. Alignment on Data Strategies is also equally important with key partners such as fund administrators.
4 Regulatory drive for transparency and disclosures
New regulatory requirements continue to change the private markets landscape. As well as the ever-evolving needs of LPs to receive more information on the performance of their portfolio(s), regulators are also busy launching new disclosure regime proposals and updating current policies, further complicating GPs’ data requirements.
Since Brexit, the FCA has created its own sustainable investment policies and adjusted relevant EU regulations. The EU meanwhile has published the proposed changes to the current Alternative Investment Fund Managers Directive (now AIFMD II), which will also lead to increased reporting requirements for fund managers. Similar movements are happening in the US, where the SEC has announced a series of proposals requiring GPs to share data more frequently.
Whatever a funds’ jurisdiction, the regulatory changes seem to mean more work is required for GPs when it comes to sharing data with both investors and regulators. These challenges can be eased through automation, and the gathering and sharing of data with both clients and regulatory bodies. A key focus area for every player in this market is having a robust data strategy that details how an organisation will respond to growing demands for data collection, management and transparency. Alignment on Data Strategies is also equally important with key partners such as fund administrators.
"Possessing data on private asset competitors can provide clear comparisons between like-for-like private companies, which can be hugely powerful insights for GPs to have. The main challenge still appears to be trust, both in where the information has been sourced and the quality of it."
5 Building intelligence through data and benchmark capabilities
In the last five years, many industry players have developed their own data platforms and analytics capabilities in an effort to generate more insight and drive better decision making. It’s probably fair to say that the aspirations for this work have not yet been met and most players are still struggling with the fundamentals such as data quality, data timeliness, and not having the right skills in their business.
We’ve also seen rapid growth in platform solutions providing GPs with valuable insights on their portfolio companies, as well as benchmark information against their peers. What used to be a guessing game based on similar, publicly available companies’ information, has now become more accessible and, therefore, more accurate for GPs.
Possessing data on private asset competitors can provide clear comparisons between like-for-like private companies, which can be hugely powerful insights for GPs to have. The main challenge still appears to be trust, both in where the information has been sourced and the quality of it.
Responding to this challenge, Aztec recently launched its own Private Markets Data Intelligence platform called Lantern, which is designed to help clients build intelligence through data and benchmark capabilities. More to follow soon…
As we said at the start, ‘data is information collected in the pursuit of knowledge, empowering its owner to make decisions based on real facts’, and the businesses who utilise data the best will be those who maximise the insights data presents. Of course, some of the data requirements we’ve outlined are in response to regulatory requirements. But most are down to how data can be analysed and used to the benefit of your organisation.
Aztec can help clients to leverage from our existing technologies, alliances (with Worldfavor among others) and new product launches, to capture, collect, analyse and share data, all of which helps to keep our clients ahead of the curve, and make the best-informed decisions they can in the current volatile market.
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