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Endowments, public pension funds, family offices – over the last few decades, they have all increased their weightings to alternative investments. As evidenced by a recent survey, that trend shows no signs of slowing down, with private equity, private debt, and venture capital making up three of the top four strategies where investors expected to increase allocations in the coming year.
So what is motivating this move to alternatives? And even more importantly, once investors shift their weightings into illiquid assets, will they be able to properly evaluate and analyze new and existing investments?
The shift to alternatives is a long-running trend for a variety of investors, all of which are motivated by different needs specific to their risk/return profiles and investment philosophies. That said, we can highlight a few trends that are broadly applicable to most investors and are widely credited with motivating the move away from public markets.
Polarized politics, unprecedented global pandemics, and other factors have contributed to especially rocky public markets over the last few years. As a result, many investors have looked for less volatile havens for their funds.
That’s driven many to alternative investments. Alternatives generally have a low correlation to the overall markets and are less affected by broad swings in the public markets – making them a strong opportunity for portfolio diversification as well as an inflation hedge.
Beyond that, alternatives are not publicly traded and thus generally have lower volatility than traditional public assets.
With the major stock indices regularly setting new records and some sitting comfortably above their historical averages, many investors are speculating about a possible bubble or, simply, not finding attractive investment opportunities in the marketplace.
This makes the case for alternatives – which, again, as mentioned above, are often leveraged as an opportunity for diversification and an inflation hedge – stronger still, especially considering the strong return of private capital over the last decade.
Alternatives have historically been complex, somewhat opaque assets that have been difficult to access and evaluate. High investment thresholds and financial complexity make them challenging for many individual investors to gain entry into. And their illiquidity makes them difficult to evaluate and manage for even the most sophisticated investors.
New technology platforms, though, are changing that. Pensions and endowments, for example, which often are comprised of small teams overseeing sizable portfolios, might not have had the bandwidth or resources in the past to handle the complex management needs of alternatives. Now, by leveraging technology platforms that are specifically designed for the needs of alternative investments, they can better evaluate opportunities and thus increase their allocation to alternatives without adding manpower.
The issue though is that many investors, driven by the above factors, are putting more funds into alternatives without investing in the technology needed to analyze and assess those investments.
The right technology can allow investors to easily track new alternative investment opportunities, perform detailed drill-down analysis of current investments, seamlessly generate performance figures, and quickly model future cash flows and portfolio growth.
At Allvue, our LP Portfolio Management solution is designed specifically to handle the challenges of private capital. Our fully-integrated platform empowers investors to perform front-, middle-, and back-office activities within a single unified environment. The strength of our system lies in its ability to integrate a wide variety of asset types into a single environment and to then streamline and de-risk team processes.
As more institutional investors move into alternatives, fund of funds will need to have buttoned-up, efficient workflows to be able to handle the influx of opportunity and capital.
Our platform simplifies workflows for fund of funds by providing them with a single source of truth for their combined investor and investment data. Our platform automates with one of their biggest challenges – data collection – via our OCR capabilities, which can automatically extract data from client and investment documents. Fund of fund managers can then interact with that data throughout all stages of the investment lifecycle via Allvue’s robust platform, or they can easily integrate our platform into their existing tech stack and workflows.
Because our platform uses one single source of data across various workflows and modules, family offices teams can easily drill-down into their private market data, allowing them to slice and dice information as needed so that they can better understand their exposure.
By blending functionalities of CRM, deal tracking and analysis, portfolio management and analysis, reporting, and investment accounting into a single solution, LP Portfolio Management provides endowments with a comprehensive view of their portfolio.
As more and more investors increase their allocations to alternatives, your investment options don’t have to be limited by manual and outdated processes. Learn how Allvue can allow you to take advantage of the potential of alternative investments without being overwhelmed by the managing of them.
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