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The push for deeper portfolio monitoring is growing as the alternatives industry also grows – and fund of funds, in particular, are likely to feel the strain. With notoriously sprawling portfolios, often filled with upwards of 200 different stakes in complex private capital funds, leveling up fund of funds portfolio monitoring practices is a daunting task.
Nevertheless, key factors are pushing the issue. From growing ESG priorities to global political conflicts, we’re continuing to see situations arise in which managers and investors are pressed to have deep and immediate insight into their many stakes, as well as the ability to quickly divest from controversial holdings.
For fund of funds managers, wearing both general partner and limited partner hats means they feel the pressure from both sides of the issue – they’ll need look-though insight into their own GPs’ activities while also being held accountable to their LPs’ one-off asks for data insight.
With these pressures at work, fund of funds managers need to prioritize the optimization of their portfolio monitoring capabilities. Doing so will help them:
Commonly tracked metrics, such as geographic allocation and fund and GP performance, while certainly essential, are just the tip of the iceberg when it comes to useful portfolio data. Equipped with the right software, fund of funds managers can push beyond these views to find even more granular and equally as important data that can bring significant changes to how they act on deals and keep internal stakeholders and investors in the loop. Here are some examples that illustrate the value of more targeted monitoring efforts:
Most fund of funds managers rely on high-level figures when seeking to understand their geographic allocations – for example, 20% in Eastern European investments and 10% in South American investments . But these broad figures don’t provide much value for managers or their investors, who likely have specific questions about what countries they’re funding. This question will be especially common as we see global political conflicts arise, such as with the Russian invasion of Ukraine, when much of the Western world moved to divest from Russian interests.
When geographic-based conflicts arise in the future, fund of funds managers can expect to receive questions from their investors on such matters. Being able to provide a quick and accurate answer will help cement them as a solid partner to their investors.
It’s no longer sufficient to only have access into fund performance metrics. With the rise in ESG emphasis in the industry, additional transparency is needed, particularly in the form of portfolio company metrics.
Fund of funds managers will likely be feeling pressure from investors if they haven’t already, seeking look-through data surrounding the underlying holdings and portfolio companies of a fund to determine whether it aligns with their ESG policy. As regulation surrounding ESG advances in certain regions, the demand for portfolio company data will only increase, and fund of funds managers should prepare by instilling forward-thinking analysis capabilities.
For all the work it takes to evaluate pipeline deals, conduct due diligence on managers’ strategies, and carry all the uncovered data across multiple tools, none of this can actually give an accurate picture of how a deal stacks up against comparable funds’ performance. To most effectively evaluate an overwhelming number of potential deals, fund of fund managers must invest in benchmarking analysis of opportunities, pulling market data directly into their system. By leveling up their ease of portfolio monitoring in this way, they’re able to work more efficiently and expose a more holistic view of risk, exposure, and performance.
Maintaining a single source of truth to conduct portfolio analysis is daunting already, and finding a way to gain even deeper insights may feel impossible to many fund of funds managers. This is why it’s so key to find the right software to help you explore below the surface and extract the portfolio monitoring data that will make a true difference in how you manage your portfolio and create returns for your investors.
Allvue’s Fund of Funds solution set is purpose-built to serve as a single source of portfolio truth, pulling through essential data points from the full investment lifecycle and from respected market data sources. Reach out today to learn more about how you can gain a detailed understanding of your risk, allocations, and performance.
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