Alternative investments: what makes their world go round?

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Finger on the pulse: In 2024, adopting a cutting-edge software solution is a strategic imperative ( iStock)

Domos FS is a Business Reporter client.

Digitalisation can play a big part in the success of all alternative investments, whether for private equity, infrastructure, real estate, or funds of funds

For anyone involved in finance and financial reporting, adopting a cutting-edge software solution is not just a technological upgrade but a strategic imperative. The seamless integration of such solutions unlocks efficiency, streamlines processes and smooths the path towards your objectives.

This is truer than ever in alternative investments: based on market analysts’ opinion, the market is projected to exceed $23 trillion by 2026. This means higher volumes of transactions, a potential increase of complexity and a shift in financial data requirements.

Another factor to keep in perspective is the need to mitigate today’s highly volatile, inflationist economic climate. When proven investment products such as traditional open-ended liquid funds come under pressure, investors look for alternatives. Institutional investors, seeking to mitigate those external factors, are increasingly turning to private assets for portfolio diversification and enhanced returns. However, these investors enter a market with their own customs and expectations: a plethora of requests for timely and detailed reports, with drill-down options, for example. Data becomes the differentiator between success and failure. It is also what keeps finance people awake at night, with the increased pressure to process, dissect and report quickly under pressure.

Let’s not forget the existing private investors, or so-called retail investors, who are also progressively drawn to the promising potential of alternative funds, with their participation steadily growing thanks to products such as European Long-Term Investment Funds (ELTIFs). Alternative investments come with their own characteristics in regulatory reporting, frequency and volumes.

In short, the ongoing attraction for private equity, and the resulting democratisation of such products, signify not only a changing investor landscape but also a substantial opportunity for expansion within the sector. But with opportunities also come unique challenges for participants such as general partners, fund administrators or depositaries.

Technology is key

The idea that data is key, and the ability to massage, cut and dice records is the unyielding force that defines an organisation’s success or otherwise, is not new. But technology demands careful consideration and a clear understanding of the operational changes involved before adoption. Handling unstructured data (emails, pdf documents, spreadsheets and so on), transitioning from manual to automated processes, and digitising a plethora of legal documents are integral aspects of navigating this intricate market. Additionally, ensuring a real customer experience during the onboarding of new investors, and providing a comprehensive overview of fund performance, along with risk and exposure analysis, is crucial. All these features should be accessible in real-time through unlimited and secure data access.

To prevent disruptions in the value chain and minimise friction, opting for a dedicated software-as-a-service (SaaS) platform for alternatives built on open technology could be the wisest course of action. This choice facilitates seamless updates and ensures the scalability of the implemented solution. Moreover, it enables the connection to third-party solutions through APIs, opening avenues for collaboration and innovation. From a business perspective, this connectivity empowers fund providers with the potential to launch new services, further enhancing their adaptability and competitiveness in this dynamic market.

Building true partnerships

The success of such a software platform, however, extends beyond its installation. It requires a well-thought-out implementation strategy, tailored to the unique needs and intricacies of the organisation. The no one-size-fits-all technology often expected in the alternatives market involves meticulous planning, collaborative efforts and a clear vision to ensure a smooth transition from existing systems to the new solution. Tech vendors, more than ever, must embody the role of changemakers, adept at balancing the complex needs of IT with the business requirements of their customers. Delivering value becomes paramount at every stage, from the initial selection of the software solution to helping clients become confident in using the applications. Sustained, swift and effective support post-implementation helps foster a culture of continuous operational excellence.

Technology is designed to propel efficiencies and provide the competitive edge organisations require, yet its true power unfolds in the genuine partnership between the client and the software provider. The objective is to equip investment funds with cutting-edge technological capabilities for informed data-driven decision making, but also to fortify their resilience in an ever-evolving landscape. This collaboration presents vast opportunities for improved risk-adjusted returns, the introduction of innovative products and even the prospect of reinventing traditional business models. The synergy between client and software provider becomes the catalyst for navigating and thriving in the dynamic sector of alternative investments.

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Domos FS is a fundtech specialising in the management of alternative investment funds (AIF) covering private equity, real estate, infrastructure, debt and fund-of-fund assets. Its platform, Domos, helps support fundraising and investor relations, automates processes and operations, structures data and simplifies fund reporting. The modular SaaS solution covers the entire operational value chain, from investor onboarding to portfolio monitoring, regulatory reporting, risk management, fund accounting and data analysis. To find out more, please visit domosfs.com.

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By Mireille Wagner, Marketing & Communications Manager, Domos FS