Transformative Technology for Alternative Investment Funds

I can’t remember when “googling” the definition of a word replaced physically looking up the definition of a word in a dictionary, or even when “googling” became a word in the dictionary.  

Transformative technology: I googled it.  There were many definitions, but the one that resonated was a comment left by an individual on a social-media-type website: “any technology that changes a paradigm.” For anyone wondering – I also googled the word paradigm: “a typical example or pattern of something; a model.”

So – what does this mean for the alternative investment world? Technology drives change.  Recent industry trends, including the “Great Resignation,” have prompted investment managers to look to technology to augment operations and create efficiencies across their organizations; to change the paradigm.  

Based on our participation in recent industry conferences and conversations with our clients, we have observed several common themes among investment managers related to transformative technology:

Leveraging Data.  From the front office to the back office, each group consumes data differently, but demands that all data is consistent.  Regardless of whether an investment manager leverages their service provider’s technology or leverages in-house expertise, the most successful reporting platforms empower users to: 

• Normalize and warehouse data obtained from multiple sources (fund administrators, portfolio management tools, brokers and custodians, etc.);
• Provide flexibility for users to enrich data to comply with end-user requirements, including classification of transactions and complex calculations across multiple data elements;
• Automate the flow of data to end-users for use in essential functions including operational reconciliations, investor reporting, financial reporting and regulatory reporting; and
• Provide benchmarking or enhanced data analytics that can be used by the front office to identify trends and investment opportunities.

Monitoring Risks. Transformative technology also presents new risks for investment managers.  Investment managers must have proper policies and procedures in place to:

• Work with advisors (in-house and/or third-party service providers) to calibrate any reporting mechanisms to meet all regulatory, financial and tax reporting requirements;
• Monitor the technology as to whether it is working as intended;
• Create a compliance calendar to effectively track regulatory, financial and tax reporting deadlines; and
• Perform due diligence and monitoring procedures related to any associated third-party service providers. 

Seamless implementation of technology will allow investment managers to comply with current and future reporting requirements.  After all – as Bill Gates, co-founder of Microsoft Corporation, said: “The advance of technology is based on making it fit in so that you don’t really even notice it, so its’s part of everyday life.”

Engaging Alternatives - Our Current Issue: Q2 2023

• Transformative Technology for Alternative Investment Funds 
• Terms of Engagement: New Rules for Negotiating the Deal
• Adding Value at Every Stage: The Emerging Opportunities of Digital Transformation in Private Equity
• What U.S.-Based Private Equity Funds Should Know About CFIUS
• The Continued Rise and Fall of Penalties
• The European Union’s (E.U.’s) Sustainable Finance Framework and Application for Non-E.U. Fund Companies: An overview of the E.U. Taxonomy, Corporate Sustainability Reporting Directive (CSRD) and Sustainable Finance Disclosure Regulation (SFDR)