Covid-19 has been a catalyst for private asset investors and managers to accelerate the shift to technology solutions, which should boost transparency. But the integration process is a struggle for some with issues ranging across compatibility and licensing.
The coronavirus-induced global lockdowns, which have and continue to pose a huge drag on fundraising activities and the necessary due diligence processes, have prompted investors and managers alike to get creative. Video conferencing tools, for example, were among the most commonly used solutions that they have adopted, but the embrace of technology does not merely stop there.
"Investor portals are increasingly expected by LPs (limited partners) and are therefore increasingly provided by GPs (general partners). These portals provide centralised access to documents and dashboards as well as fund performance, valuations, and information like sector concentration," James Donnan, managing director for Hong Kong at fund administration specialist Intertrust, told AsianInvestor.
For investors, in particular, information about their previous commitments can also be compiled and made accessible through the portal, where details on allocations and the amount of capital yet to be called are available at a tip of a finger, Donnan said. He added that it is typical for managers to provide virtual signature solutions for investors who opt out of signing physical documents.
"They [LPs] want electronic documents and electronic KYC (Know Your Customer) and automated processes," he said.
A poll by Intertrust in April showed that 79% of 143 private equity fund managers across Europe, North America and Asia agreed that there will be a drive for greater transparency among LPs over the coming year. Additionally, 70% indicated that the demand for more sophisticated data solutions among LPs will grow.
Although the adoption of technology solutions varies from investor to investor, the recent almost universal work-from-home arrangements have driven investors, who were previously concerned over storing fund documents on cloud servers, to do just that to make information more accessible, said a Hong Kong-based senior private equity investment executive at a global LP.
"Some may be more concerned about cybersecurity, or they do not trust public cloud, so they have to use their own server and everything ended up being quite local," the executive said, adding that such a move could be inefficient with a rising number of people working from home.
Having said that, LPs generally still want fund administration automated because one fund investment typically entails hundreds of cashflow items throughout the vehicle's life.
A "DAUNTING" TASK
But integrating those solutions is easier said than done for private asset investors. Put simply, it's more than just paying the vendor or acquiring the software.
"To be honest, a lot of these integrations can be quite daunting because [there are] multiple providers for one particular LP and they may not talk to each other," the unnamed executive said. Indeed, each solution offered by different providers often caters for a specific task, ranging from recording-keeping to facilitating the process of distribution-in-kind, which is payment made in the form of securities instead of cash.
While he highlighted artificial intelligence being an essential element in automating LP's operations, coordination is critical because every party involved in the new process needs to be aware of the solution's capabilities as well as the role they play.
One such example can be drawn from automating the task of analysing fund managers' quarterly reports. While technology serving that particular need exists, the logistics required in adopting such solutions could entail informing the GPs, down to harmonising the dataset's format in the system with reports coming in all shapes and sizes.
"It's a big project involving multiple people on the LP side, back office, front office as well as the GP side, to get all these up and running," he said.
Similarly, developing and licensing tech solutions can be "time-consuming and costly" for fund managers too, said Donnan, so this has led them to outsource their fund administration to tech-enabled service providers.