How to simplify your alternative investments support

Insights by Danish pension fund ATP, Cutter Associates, and SimCorp
Simplify your alternative investments support
Ryan Glass
Solutions Architect, SimCorp
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Machine learning for alternatives
Hugues Chabanis
Product Portfolio Manager for Alternative Investments, SimCorp
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Read the article and learn about:

  • Simplifying your alternative investments support
  • Leveraging technology to tackle operational challenges
  • The advantages of multi-asset solutions
  • Covid-19 perspectives on alternative investments support

During a recent webinar1 on supporting alternative asset investment for multi-asset investment managers, SimCorp was joined by Danish pension fund ATP Group and global consulting and research firm Cutter Associates to discuss the current landscape investment managers are facing and how to address the associated operational challenges. Since the time of the webinar, Covid-19 has changed the world and the financial markets in a number of ways, with consequences we don’t know the full scale of yet. Still highly valid and relevant, the article summarizes the key findings of the webinar and offers valuable hands-on advice on how you can simplify your alternative investments support from an operations and technology perspective.

 

The operational challenges faced by institutional investors investing in alternative assets is a growing problem. Preqin projects that by 2023 there will be $14 trillion assets under management in alternative asset classes. Despite the increasing allocation to alternatives, there is little growth in scalability to support these investments. As part of the 2019 InvestOps survey2, North American multi-asset investors highlighted their biggest challenges in supporting alternative assets. Their responses can be grouped in three primary challenges: lack of system consolidation, reporting time lags and associated transparency issues, and processing unstructured data. The recent webinar session hosted by SimCorp and featuring Cutter Associates and Danish pension fund ATP Group proved that those challenges are still very relevant when supporting alternative investments.3

Additional challenges arising from the COVID-19 epidemic test the current landscape for institutional investors across the spectrum of asset classes, but the particular challenges facing alternative investments introduce further complexity. If you are relying on a set of disconnected systems, it requires significant intervention to address how the alternative investment portfolio fits in the wider portfolio from a risk perspective. Given the reporting time lag and associated transparency issues, understanding valuations or expected cash flows for the current portfolio is especially challenging and impacts the ability to update pacing plans to achieve the desired allocations. Across the industry, the operational challenges are exacerbated by a remote work environment with little time for preparation.

Trends and challenges in supporting alternative investments – perspectives from Cutter Associates

Jon Chandler, Senior Research Analyst at Cutter Associates, confirmed at the webinar the issues highlighted by the investors in the InvestOps survey. “When supporting alternative investments and the unstructured data that come with these, many clients are wasting a lot of time on error-prone manual workflows and latency, accentuated by limitations and integration issues with point solutions – time that could have been spent on their main mission: alpha generation,” he said.

Through research on the alternative investment landscape with their global member organizations and vendors, Cutter has identified an increasing allocation to alternative assets of their members: 19% expected increases to their private equity allocations, 14% expected increases in real estate, and 40% expected increases to infrastructure. “But although our 2019 member survey showed that investments in real estate and infrastructure will continue to be on the increase, the risk of disruption (e.g.  Amazon), systemic risk (e.g. global warming, pandemic, etc.), as well as lack of talent and continued investment opportunities make investors concerned how these risks might impact their long-term investments,” Jon Chandler added.

While investment management firms are not only increasing their allocation to alternative asset classes, Cutter has also found that they are increasing the complexity of their investments. From an increasing allocation to esoteric investments like music or video royalties to the impact of blockchain on real estate investments, Cutter has identified a growing trend in alternative investments that push the boundaries of their members’ current operational capabilities. “Looking forward, investments into new technology and increased operational efficiency will be the solution to all these concerns,” Jon Chandler remarked.

Cutter has identified a growing trend in alternative investments that push the boundaries of their members’ current operational capabilities. 'Looking forward, investments into new technology and increased operational efficiency will be the solution to all these concerns'Jon Chandler, Senior Research Analyst, Cutter Associates

While more traditional in nature, the rise of direct investments and co-investments into alternative assets by multi-asset investment managers further stresses the need for improving their operational capabilities. The issues of adequately addressing staffing needs and supporting an asset class with an entirely different set of business processes from traditional investments have investment managers concerned about their corporate governance and ability to respond to investment decisions or regulatory requests in a timely manner.

While challenges attributed to the changing landscape for investing in alternative asset classes are growing, the challenges themselves are inherently similar to the three challenges identified in the InvestOps survey.

Specifically, firms are leveraging technology to address the issues outlined earlier. With an increased spend on technology investment, managers attempt to mitigate the issue of transparency and reporting time lags by onboarding their alternative assets to the same solution used for other classes. In hopes of easing the pain of unstructured data, some firms are turning to machine learning to remove the burden of processing data from highly skilled employees allowing them to concentrate on more value-added tasks. These firms are seeing the least operational impact during the COVID-19 epidemic.

There will likely be one lasting change from the current crisis according to Cutter Associates. “For many firms, particularly those not located in major financial centers, attracting talent has always posed a significant challenge when it comes to investing in and supporting alternative assets. But necessity is the mother of invention, and if there is at least one positive that we can take away from the COVID-19 crisis, it’s that we’re witnessing a paradigm shift across the industry. While many firms may have resisted allowing their staff to work remotely in the past, the COVID-19 crisis has shown them that it can be done. And that now creates an opportunity for many firms, as their talent pool has become much wider.”

Transitioning to a multi-asset integrated solution at Danish pension fund ATP Group

Danish pension fund ATP Group offered their perspective in the webinar as a multi-asset investment manager with a large and growing allocation to alternative investments. With DKK 886 billion assets under management invested in fixed income, equities, funds, real estate, and infrastructure, ATP is the largest pension fund in Denmark. Their allocations to alternative investments include the more traditional private equity, infrastructure, and real estate funds but also direct and co-investments in infrastructure, real estate, and natural resources.

ATP had an ambition to transition their support of alternative asset classes from a best-of-breed system to a multi-asset class solution as this would enable the pension fund to simplify the operational and technology processes related to supporting alternatives. By consolidating systems they also believed they benefit from more transparency into their alternative asset investments. “The offering from SimCorp was attractive as it enabled us to get a unified platform for all our assets including alternatives, leverage strong IT support, avoid complex integration, and improve our existing look-through functionality,” said Bettina Amanda Bredøl, Finance Business Partner - P&I Finance (Pensions and Investments), ATP.

Additionally, by leveraging one system for all asset classes, ATP would benefit from having one source of the truth for analyzing currency, sector, or geographical exposure across asset classes at any level of their investment structure. “At ATP, we were looking for a solution that would give us transparency and simplicity in our support of alternative investments. Our current solution was a disparate application with a complex interface to our main solution, which required a lot of manual workarounds,” explained Bettina Amanda Bredøl, Finance Business Partner - P&I Finance, ATP.

At ATP, we were looking for a solution that would give us transparency and simplicity in our support of alternative investments. Our current solution was a disparate application with a complex interface to our main solution, which required a lot of manual workaroundsBettina Amanda Bredøl, Finance Business Partner - P&I Finance, ATP

ATP made the decision to onboard alternatives to their core multi-asset class solution. SimCorp’s commitment to developing products for multi-asset managers to support the entire front-to-back investment lifecycle was important when choosing to consolidate onto a single platform at ATP. Further enhancements to better analyze exposure in funds will help address their current complicated processes to meet regulatory requirements. The biggest development for ATP echoes the sentiments Cutter saw in the market place: leveraging artificial intelligence to process unstructured data. “Looking forward, artificial intelligence is something we will be looking into together with SimCorp to achieve, for instance, further automation and authorization processes,“ added Bettina Amanda Bredøl, Finance Business Partner - P&I Finance, ATP.

Looking forward

Leveraging the technology available today, and what will be available in the future, offers ATP and other multi-asset managers solutions for battling the operational challenges coming with alternative investments. Given the staffing constraints for finding talented professionals with experience in alternative assets, addressing the operational challenges with technology provides a more sustainable approach. While investing in alternative assets has typically suffered with issues of scale, the ability of multi-asset solutions to address the issues presented by limited system integration, a lack of transparent and timely reporting, and processing unstructured data will help investment managers simplify support of investments in alternative assets.


1. https://www.simcorp.com/en/insights/insights-resources/webinars/simplify-your-alternative-asset-strategy
2. 2019 North American InvestOps Report: ‘Empowering multi-asset front-to-back investment operations, WBR Insights, SimCorp, 2018.
3. https://www.simcorp.com/en/insights/themes/alternative-investments

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