The alternatives industry has continued to experience strong growth overall, according to Preqin's 2019 global research. And the future looks bright, as investors plan to increase their allocations to alternatives. However, fee pressure, regulations, and investor demands continue to weigh on the industry, and competition is becoming fierce, particularly among smaller hedge and private equity managers.
Author: Chris DeNigris
As competition accelerates within the investment funds industry, and investors continue to demand greater levels of insight into their portfolios, fund managers need to rethink their data management strategy to better prepare for the future.
It’s no surprise that as managers have increasingly outsourced certain functions, they have consequently given up some control of their data. But as a way to course correct, fund managers are moving to recapture control of their data as they realize the immense potential and value of this data. Not surprisingly, this shift isn’t equal across all industry participants. The largest investment managers have leveraged their significant budget and resources to lead the way in better capitalizing on huge amounts of data. However, fund managers of all sizes are trying to make impactful investments so that their businesses are not left behind. Leveraging data as a competitive advantage has become more critical than ever, and many in the industry see data visualization as the solution.
According to a survey by Ernst & Young, the majority of alternative fund managers are looking to invest in technology to help them manage their growing data pains. As high as 72% of hedge funds and 65% of private equity funds are currently investing or planning to invest in data visualization over the next two years.
What is pushing them into this kind of data innovation? Based on a survey conducted by KPMG, 58% of alternative asset managers say growing cost pressure is a key factor. With competition in the alternatives space at peak levels, fund managers are forced to lower their management fees in order to attract capital. This, in turn, puts direct pressure on their operational costs and essentially forces fund managers to do more with less. In the same KPMG survey, 51% cited changing investor needs as another factor. In an era of hyper customization, investors are pushing managers to create personalized products to fit their specific needs, and with this comes even more bespoke and complex reporting requirements. All of these factors mean that data volumes across the front, middle and back-office will continue to grow exponentially. But since managers typically use a multitude of independent systems to handle middle and back-office processes, they are finding it ever more challenging to report across disparate data sets. To further complicate things, integration across these systems is typically not a viable option, as it is often too costly and time-consuming.
This is why data visualization has become so vital in data management. Instead of having to go to each individual system for risk, reconciliation, NAV approval, and more, fund managers can now rely on a single, integrated view into their investors, investment holdings, risk and performance. Modern data visualization allows firms to manage data more effectively while reducing the manual reporting that used to be required to get the insights needed to make smart investment decisions.
With the industry expected to grow from $10T to $14T by 2023 according to Preqin, competition for new mandates will continue to be fierce. The stakes are greater than ever, so firms can no longer be slowed down by antiquated technology and disconnected systems. The leaders of tomorrow will be firms that innovate and leverage data visualization tools to help normalize, collect, analyze, and distribute data from their disparate systems. This will lower costs and accelerate decision-making, giving them the edge to handle the challenges of today and scale to meet the needs of tomorrow.
Chris DeNigris is a member of the Sales and Marketing team at BaseVenture. He has over 15 years of experience within the alternative investments industry. Prior to joining BaseVenture he led product marketing within FIS Global's Asset Management business unit.