How rising alternative investment is demanding digital dexterity from GPs

The capability to deliver efficient and real-time data through digital tools has become a key differential for asset managers in the private market.
How rising alternative investment is demanding digital dexterity from GPs

The digital and data management capability of fund managers is playing a more important role than ever as asset owners continue to raise allocation to alternative assets, according to a recent BNY Mellon report.

Data science technologies - from e-signature, cloud-based solutions to more nascent areas such as blockchain and robotics - will be crucial for asset managers needing to stay on top of the rising demands of clients in the private space, the report said.

As inflation pressure mounts, amid a continuing low-yield environment globally, investors are putting more assets into private markets in search of alpha.


“The rise of alternatives entails increased use of data science techniques. Alternatives are less quantitatively driven than traditional investment types. More than half, or 55% of respondents believe data science can assist with transforming unstructured data into meaningful insights,” BNY Mellon said in the survey published on Monday.

“Digital capabilities are helping asset managers connect the dots between new product offerings and distribution channels. Data insights will help to unlock new ways to reach investors and propel assets under management (AUM) growth,” said Irene Speridakos, head of investment managers with BNY Mellon.

The research, which surveyed 200 asset managers globally in the third quarter of 2020, found that the top priority for asset managers was in distribution through digital channels to improve real-time portfolio and account information, followed by improving access and self-service options for clients, enhancing personalisation, and expanding the delivery of investment advice.

Source: BNY Mellon

“As asset owners are investing through so many general partners (GPs) today, they are increasingly looking for an accurate top-down view of their portfolio across all the asset classes,” said Eric Chng, State Street’s head of Alternatives and Insurance segments for Asia Pacific.


According to State Street data, dry powder levels in the private market are at an all-time high of $1.6 trillion globally, including $180 billion in the Asia Pacific region.

“For private markets, Asia Pacific is a young region, so most funds are still in investment periods. It is expected that distributions will kick in in the next five to seven years and the capital will need to be redeployed. This will further drive growth of private markets in Asia Pacific,” Chng said.

“So, to meet this demand and to remain competitive, I think managers would need to invest in the variety of data tools that can meet the transparency it needs. And that, in turn, drives the investment dollar that's coming into their fund,” he noted.


Because accounting standards tend to be weaker in Asia compared with other developed markets,  investors are more likely to look at how to effectively disclose data and keep clients informed when investing in alternative assets in Asia, Chng said.

“This means you need to rely a lot more frequently on valuation from independent parties. How you manage such data and ship the reporting requirements that the investors want are some of the key considerations,” he said.

In another BNY Mellon report published in November that surveyed 100 alternative asset managers and 100 institutional investors globally, most respondents believed cloud computing would drive digital and operational transformation in their organisations.

Cloud computing can serve as a point of departure for organisations as they add new digital services or products and wean themselves off paper-based processes or spreadsheet-based analytics.

Source: BNY Mellon


Among alternative asset managers, the top three use cases for data and analytics are performance and risk management, product design and development, and asset selection and allocation.

“These use cases are all core competencies integral to generating returns for investors,” the report said.

The most-cited obstacle to effective data management for alternative asset managers is the difficulty of aggregating data across fragmented systems, with 48% of respondents placing it in their top three challenges.

Unstructured data sources and the reliability, completeness and freshness of data are also obstacles to effective data management, with 46% of managers rating both as top three issues.

“Again, alternative asset managers are likely to struggle more than most with this, given that private equity, private debt and real estate rely heavily on unstructured data,” the report noted.

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