Harnessing advanced technology: How alternative investors are expanding financial options

In the past few decades, alternative investment management has grown rapidly from a small-sized, niche market segment into quite a prominent industry. As per a recent report by UBS, a leading investment bank, alternative investments now make up a major portion of the portfolios held by investors in comparison to only a few years ago.

Significance of alternative investments

Currently, rising market volatility and increasing inflation concerns are driving the overall popularity of alternative investments as a reliable form of wealth-building strategy. Therefore, in the modern investment landscape, many investors are turning to alternative investments to diversify their respective portfolios and achieve improved returns. 

Leveraging technology

While the alternative investment management industry hasn’t been the quickest in adopting the latest advanced technologies like other sectors, still there are signs of changes accelerated by the global pandemic.

Let’s discuss some of the core processes that have supported this technological transformation in the alternative investment management industry:

Deal flow

The alternative investment industry is undergoing a transformation driven by technology. The adoption of technology solutions for deal-flow management has become essential for alternative investment firms to keep pace with the rapidly evolving marketplace. Advanced deal flow solutions can help in centralising deal flow by offering customisable workflows.

Further, investment managers can leverage these solutions to remove data silos and maintain data security by effectively managing stakeholder access to deal information. Advanced deal flow solutions can also enhance team engagement and collaboration by enabling geographically split teams to collaborate and stay updated with all the latest deal information.

Investment management

The investment teams in alternative investment management firms essentially require support for generating amortisation schedules, tracking cashflows and valuations, and evaluating investment performance. A manual approach can be time-consuming, inefficient, and a mediocre way of operation as multiple investments must be taken care of. Technology helps investment managers by automating these tasks.

Advanced investment management solutions offer features that automatically generate amortisation schedules based on pre-defined parameters. These solutions further allow investment managers to quickly assess portfolio performance by automatically calculating metrics such as IRR and MoC, helping them make the right investment decisions.

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Portfolio monitoring

Portfolio monitoring is an important investment process that forms the basis of the investment strategy of any alternative investment management firm. However, many alternative investment management firms end up relying on human intelligence and manual effort to collect and monitor their portfolio financial, KPI, and ESG data. The need of the hour for a typical alternative investment management firm is to possess a comprehensive asset and portfolio monitoring application. The portfolio monitoring solution should be capable of offering users a consistent view of operational and financial performance.

Advanced portfolio monitoring solutions aim to track several portfolio companies' Financial, KPI, and ESG parameters to analyse the overall investment performance. They also offer robust features for the collection of financial, KPI, and ESG data. This brings all core financials of a company to a single platform for rapid performance analysis and other key financial parameters.

Fund management

Technology has greatly enhanced the operational effectiveness of fund management for alternative investment management firms. Fund managers can now concentrate on strategic efforts by automating laborious manual operations that were traditionally time-consuming and prone to mistakes. Advanced fund management solutions help fund managers streamline operations. This includes investor onboarding and management, capital calls, fund accounting, and reporting.

CRM

In the alternative investment management industry, relationships remain the foundation of the dealmaking and fundraising processes. Dealmaking and fundraising in the alternative investment industry are complex, non-linear, and long-term processes. On average, the standard lifecycle of a particular deal can range between one to two years—right from deal sourcing to closing. Moreover, fundraising also requires special efforts in nurturing relationships and engaging potential and existing investors over long periods.

With such a vital role, there is no denying that CRM software can play a crucial role in nurturing or hindering relationships. The advanced CRM solutions automate key administrative tasks such as meeting and task management, email and document management to offer a robust, practical solution for the entire industry.

Reports and analytics

In the alternative investment management industry, accurate analysis of data, both pre-investment as well as post-investment, is of utmost importance to arrive at correct business decisions. However, deducing insights and generating reports from raw data is a challenging and time-consuming task for investment managers.

Advanced technology solutions capable of analysing data and generating comprehensive reports with a single click of a button have aided investment managers. These solutions offer quick data analysis and report generation features along with pre-defined standardised formats (e.g. ILPA). Further, they also offer added flexibility to customise reports and analytics as per customer needs thus empowering them to easily present their data in the desired format. Without worrying about the hassles of working with traditional report creation tools like Excel, that too.

(Ankur Agarwal is Co-founder and CTO of PE Front Office.)