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With heated competition for the latest deals and the need to quickly capitalize on new opportunities, process efficiency is of paramount concern to LPs. According to an SS&C Intralinks 2021 LP survey, 75% of LPs have confirmed that over the next 12 months they will increase their allocation to alternative investments, with 20% of those LPs aiming to increase it by 10 percent or more. As LPs’ interest in alternatives grows, they have discovered that portfolios holding multiple asset classes are generally much more labor intensive due to the disparity in and varied sources of data that comprise each asset class.
Because of the many disparate types of data they need to manage, LPs experience resource shortages, as they must deploy high level resources to focus on non-value-added activities like data entry, instead of on value-added work such as risk management, investment decision making, and relationship management, etc. However, the introduction of automation into low-value work-intensive tasks not only mitigates the need for extra resources, it can also reduce or remove human error and create consistency across these processes on a day-to-day basis, making an outsized contribution to an LP’s success.
This was especially evident during the COVID-19 pandemic, as LPs that utilized cloud-based, fully-integrated platforms immediately realized the advantages that uniform processes and automation could bring to their remote workforce. They were able to quickly organize and automate internal tasks—from front-office investment decisioning, to middle-office reporting tasks, to back-office document and information reconciliation—keeping teams working smoothly regardless of location or time zone. Without process automation and efficiencies, these same LPs would have spent more time and effort coordinating and maintaining connectivity across disparate systems, exacerbating their own uncertainty at a time when doubt was stoking the markets.
To remain competitive in today’s market, many LPs now understand the necessity of integrating efficiencies into their portfolio management activities. And while some continue to rely on manual operations via spreadsheets or on isolated single function systems to execute portfolio-related tasks, many are now focused on the best practice of utilizing these efficiencies via automation of the entire portfolio management process.
According to an August 2020 Preqin Investor Survey, 80% of investors plan to increase their allocation in alternatives by 2025, adding asset classes such as private equity, private debt, real estate, and infrastructure to their portfolios. With each of these disparate asset classes comes different sets of data and information that must be aggregated, reconciled, and interpreted meaningfully, which, without automated processes becomes more difficult to achieve. And while the COVID pandemic was an outlier event, it demonstrated how utilizing efficiencies throughout the portfolio management process allowed LPs to better focus resources to excel at their core competencies.
LPs struggle with huge volumes of transactional and financial data that they receive regularly, and with the move towards multi-asset class portfolios, issues around efficient data collection—as well as knowing that the data they’ve collected has been correctly processed and classified— will continue to be cause for concern.
Because the data from each asset class type comes in various distinct formats and designs, LPs need to employ a systematic approach. Without one, LPs lack a comprehensive understanding of their data, which then cascades across all internal processes, as each one depends on the reliability of that data. For example, the utilization of an automated process such as validation checking ensures that the same checks are being applied to every entry. Because the logic used to handle information is pre-built, each datapoint is validated in relation to previous and similar activity, providing LPs with confidence in the integrity of their data.
With technology now available to read and scrape key information from multiple document types and formats, the need for extra resources to perform mundane tasks across data collection is no longer an issue. Automated data collection and processing lets LPs use this information to quickly and easily to populate workflows, systems, and dashboards, providing them with accurate, up-to-date information on their investments, and flagging potential risk or opportunity.
Those same mountains of information in multiple formats that LPs must contend with are also complex, disparate, and not easily decipherable without automated processes in place. Once LPs have collected, sorted, and reconciled their data vis a vis an automation process, the next step is to put it to use by amalgamating it across the multiple alternative investment types they hold. This way, LPs have a comprehensive and granular picture of their portfolio exposure and can easily pinpoint areas of concern where they need to focus their attention. Further, utilizing automation technology will eliminate the manual creation of reports, reduce error, and mitigate the need for the re-working of data. The result is that both public and private data can be distributed across the entire organization, allowing LPs to see their full portfolio at a glance. This allows teams to focus on more value-added activities across the board.
Sharing key information and collaboration among internal stakeholders is critical for LPs. Flexible and comprehensive reporting is essential so they can get the answers they need to their investment questions. With efficient reporting processes in place, reports can be created to automatically generate tailored information targeted to the needs of internal and/or external stakeholders. In the case of external stakeholders, the information can then be sent to them at regular intervals or on an ad hoc basis. For internal stakeholders, reports can be generated as needed, so they can interact with the information at their leisure. This reduces the need to generate and disseminate reports manually based on multiple schedules and requests.
Modeling and forecasting
In order for LPs to understand what their portfolios will look like over the near term, as well as in the future, they need to know what investment opportunities to pursue when they’re brought to market. However, the work required to create comprehensive models is time-consuming, as they are large and complex, requiring hours of manual effort. Instead, LPs need to be able to build sophisticated models quickly. For example, specific checks and balances can be built into these reports to allow LPs to be notified of substantial changes to outcomes or exposures. This way, they can take a proactive stance when it comes to portfolio management and get ahead of such issues.
Utilizing efficiencies and automating internal processes help LPs not only over the short-term, but well into the future by producing cumulative benefits. With allocations to alternatives growing, this strategy is becoming a major part of any LP’s portfolio. As they invest their allocations, utilizing the right solution will allow them to grow successfully and preclude resource constraints from holding them back.
With regards to the deal-making process, LPs can locate and analyze potential investment opportunities more quickly, selecting only those most suitable to their portfolio over the long term. Analytics processes let them vet potential investments more precisely and provide improved deal pricing ability.
Visualization and Business Intelligence tools deliver instantaneous clarity on the future direction of investments, so LPs can instantly pinpoint the investment gaps in their portfolio or reveal if they’re over- committed in certain sectors or geographies. Lastly, the ability to leverage real-time data, originating from an LP’s portfolio, as well as from the public markets, contributes to all aspects of operations, jump-starting workflows and facilitating decision-making.
In summary, when processes are automated and modernized, LPs can save time, channel resources to higher level tasks, and reduce error overall, consistently improving their ability to react smarter and quicker than the competition.
Allvue’s LP Portfolio Management solution is a multi-asset, front-to-back platform designed to streamline workflows, automate processes, and obliterate inefficiencies, helping LPs enhance their investment decision-making. LPs can manage and analyze their investment portfolios across multiple alternative asset classes, track investment opportunities and cash flows, analyze the performance of their investments, and model the growth of their investment portfolios– all in one fully-integrated platform. With LP Portfolio Management, LPs make better investment decisions every step of the way.
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