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Update on Private Capital Asset Management Trends

Revisiting Predictions: 5 Asset Management Trends to Watch in 2020

In 2020, we had the opportunity to interview James Haluszczak, the founder of SteelBridge Consulting. His firm has been instrumental in providing strategic advice to private equity and venture capital fund managers, investors, and administrators. During the interview, James shared his perspective on the top 5 asset management trends that he believed would significantly impact the private capital industry in 2020.

Key Takeaway:

  • The article revisits predictions made in 2020 about asset management trends.
  • General partnership accounting has seen a growing role in the industry.
  • The need for seamless data flow between different software solutions (interoperability) was identified as a key priority in 2020 and remains so today.

Today, we aim to revisit those predictions, evaluate their accuracy, and understand their relevance in the current year. Additionally, we will explore new trends that have emerged since 2020, which were not discussed in the original interview. A lot has transpired in the world over the past 4 years that has had and will have a profound impact on the continuing evolution of the private capital industry.

Prediction: Adoption of Process Workflow Automation

Adoption of process workflow automation was one of the key trends predicted for 2020. It was expected that asset managers would continue to look for efficiencies by automating key processes, such as bank wire verifications, the GP carry process, and expense allocations, which were often manual. If these processes were automated and could capture historical data, asset managers would significantly reduce risk and gain operational economies of scale.

In the private capital sector, there was a massive shift across all fund managers looking to put process automation in place. There were core systems with workflow automation already built into their platform, but this control was only focused on workflows specific to that particular system.

Asset managers were looking to control approvals and processes for both internal and external constituents that span multiple systems. Incumbent systems generally did not offer business process management within their system. As a result, we were seeing more firms looking at broader process control systems such as Unqork and Appian or private capital industry specific process automation and data integration solutions like Exchangelodge. Large fund administrators had also stepped in, offering administration oversight functionality and services, which was increasing asset managers’ reliance on external support to govern these processes.

This Prediction Came True

Fast forward to today, this prediction has indeed materialized. There’s been a widespread shift towards process automation in the private capital sector. Both core systems and industry-specific solutions now offer workflow automation functionalities.

One tool that has notably facilitated this transition is Robotic Process Automation (RPA). This evolution signifies the accuracy of the 2020 prediction and its continued relevance in the current landscape. It’s interesting to see how the landscape has evolved since 2020, and how the predictions have held up over time. The adoption of process workflow automation has indeed played an increasingly important role, just as it was anticipated. This trend continues to shape the industry, demonstrating the foresight of the 2020 predictions.

Prediction: Greater Prevalence of Automated Self-service Investor Management Tools

According to James in 2020, self-service capabilities are becoming more common, allowing LPs to manage the often time-consuming effort of managing who on their team should receive what information from their fund manager GPs. This self-servicing is reducing the bottleneck often caused by the fund accounting and investor relations staff due to being overwhelmed with often unclear contact change requests. Beyond contact management, we are seeing a major shift toward enabling investors to easily gain access to and provide oversight of asset management information using dashboards and automated, self-service portals. These LP portals provide insight into a firm’s accounting while still allowing the fund manager to have the ability to control access and the level of information that an investor can view.

These tools are reducing the need for frequent manual communications and ad hoc reporting previously performed by the accounting and investor relations teams while continuing to allow the fund manager to maintain access control. Investors’ reliance on frustrating and frequent direct touchpoints are being reduced, however, we must remember the private capital industry is a relationship-based business, so we will never entirely eliminate direct touchpoints – there will always be a need for investor contact.

This Prediction Came True

Since, self-service investor portals have indeed become increasingly common, providing LPs with the ability to manage contact information and access investment data at their convenience. This has significantly streamlined the process, reducing the workload for fund accounting and investor relations teams.

The automation of these processes has not only improved efficiency but also enhanced the accuracy of data management. Portals have evolved to offer more comprehensive features, including advanced analytics and customizable dashboards, providing LPs with a more in-depth understanding of their investments.

However, while automation has reduced the frequency of manual communications, the need for direct touchpoints has not been completely eliminated. The private capital industry remains a relationship-based business, and personal interactions continue to play a crucial role.

Prediction: GP Fund Accounting to Become More Core to Accounting Operations

The private capital industry has a handful of enterprise-grade fund accounting software platforms. While these systems run the books for the entity as a whole as well as for the underlying limited partners, the GP fund accounting processes have not always been a core focus point.

In 2020, GP fund accounting will become more core to a firm’s accounting operations. I believe we will continue to see evolving products and feature sets that can specifically handle GP fund accounting processes, such as GP carry complexities and expenses, with regards to the limited partners, general partners, and the management company.

This Prediction Came True

GP fund accounting has indeed become a more central focus for accounting operations. This shift aligns with the prediction that GP fund accounting would become more integral to a firm’s accounting operations.

Fund accounting software platforms have significantly evolved to better handle complex GP processes like carry calculations. These advancements have streamlined the accounting operations, reducing complexities and enhancing accuracy. The software now offers more comprehensive features and functionalities specifically tailored to handle GP fund accounting processes. This includes managing complexities and expenses related to limited partners, general partners, and the management company.

Prediction: Interoperability to be a Key Strategic Priority

Interoperability is a massive trend as asset managers utilize technology integration between multiple solutions for data capture, business intelligence, customer relationship management, reporting and other business needs. It is also one of the highest priorities for established large and mid-market fund managers. These firms are already spending time, resources, and money on solving the interoperability challenge and creating a technology stack that is fully integrated.

Emerging managers, who have a lower reliance on enterprise products, are seeing the same need for interoperability. They are capitalizing on the greenfield operating environment by tackling this challenge from the start in order to enable more efficient scaling capability as they grow their firms.

FundCount has recognized the need for interoperability between systems and will be introducing connectivity to numerous applications that extend the benefits of FundCount. Both SteelBridge and FundCount expect to work closely with clients over the next few years to help them with their interoperability needs.

This Prediction is Still Valid

The prediction that Interoperability would be a Key Priority continues to hold true today. Integration between different software solutions remains a major priority for asset managers. This is driven by the need for seamless data flow and efficient operations, which are crucial in the increasingly complex landscape of the private capital industry.

Established players in the industry are diligently working on creating fully integrated technology stacks. This involves developing and implementing software solutions that can communicate and work together effectively, thereby enhancing operational efficiency and data accuracy.

On the other hand, emerging managers are proactively tackling interoperability from the start. They are investing in integrated systems and prioritizing interoperability in their operations to ensure future scalability. This foresight allows them to adapt and grow in an industry that is constantly evolving.

Prediction: Mobile Remains Top of Mind

While mobile access and real-time reporting are driving rapid change in many industries, this is less true in the private capital markets at this time. However, we anticipate that over the mid-term we will see more need for mobile access and real-time reporting. To prepare for this, some of the industry’s software vendors already offer this capability on mobile devices, but it is not yet widespread nor is it a major requirement from investors. While mobile-friendly platforms are likely to become more popular, I believe changes in regulations will be crucial to the adoption of this capability.

This Prediction is Still Evolving

While mobile access and real-time reporting have been driving rapid change in many industries, the adoption in the private capital markets has been slower. However, the need for mobile access and real-time reporting is gradually increasing.

Industry software vendors have been preparing for this shift by offering mobile capabilities, but it’s not yet widespread. The adoption of mobile-friendly platforms is expected to increase, but changes in regulations will play a crucial role in this adoption.

New Trends that have Emerged Since 2020

Focus on Environmental, Social, and Governance (ESG) factors: A significant trend that has emerged since 2020 is the growing focus on ESG investing within the private capital industry. Investors are increasingly considering ESG factors during the investment decision-making process. This shift reflects a broader societal emphasis on sustainability and responsible investing, with investors recognizing the potential impact of ESG factors on long-term investment performance.

Rise of alternative data sources: Another notable trend is the increased use of alternative data sources by private capital firms. These firms are utilizing non-traditional data sources like satellite imagery and web traffic data to gain deeper insights into target companies. This trend underscores the industry’s ongoing digital transformation and the growing importance of data-driven decision making.

Impact of COVID-19: The COVID-19 pandemic has had a profound impact on the private capital industry, leading to the emergence of new trends. There’s been a rise in virtual due diligence processes as travel restrictions and social distancing measures have made traditional due diligence methods challenging. Additionally, there’s been a focus on sectors resilient to economic downturns, reflecting the industry’s adaptability in the face of unprecedented global events.

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