Evolution revolution: How tech is leveling the playing field for alternative investment firms

For alternative investment organizations -- foundations, endowments and family offices -- it’s not easy keeping pace with larger competitors with deeper pockets and a lot more personnel. Perhaps the most critical problem facing these small to mid-sized investment offices is an ever-present lack of confidence in the quality of diverse portfolio investment streams, coupled with an inability to view and manage data across multiple views.

This is the result of a hurdle that has long stood at the intersection of investing and accounting. Every day, these professionals try to assemble data that’ll enable their firms to effectively manage a range of different portfolios and seize opportunities with better, faster decision making. Yet, like Bill Murray in Groundhog Day, each day is a repeat of the one prior; sources can’t be audited and verified promptly enough, leading to serious data discrepancies.

This not only frustrates portfolio managers, it creates issues for chief financial and operations officers (CFOs/COOs). They’re striving to deliver precise and current reporting and analytics to the CIO, who needs this information for even higher level decision-making, as well as to keep investment committees informed. But how can they believe in its accuracy when "best-available" is the product of data silos that can’t be reconciled?

Fortunately, technology developments are finally giving alternative investment firms the confidence and capabilities to take on any sized portfolio and unlock new insights to improve performance.

Better together

In recent years, technology has emerged to bring together accounting and investment books of records (ABOR/IBOR). The result is a level of data transparency that elevates trust, while providing added benefits including streamlined workflows, greater insights and automation. The latter particularly helps professionals such as accountants and allocators to apply their skills to work that produces greater value and profit. 

Keep in mind how extremely labor intensive it is to assemble quality multi-asset data. The sources of data streams vary from fund managers to outsourced accountants, and so do the formats and timetables they use, greatly complicating matters. Until now, the only work-around has been a plodding manual process, which not only drives inefficiency and raises costs, it introduces the likelihood of human error. Adding to this chaos is spreadsheet sprawl, in which individuals and departments maintain their own spreadsheets and fail to share data, which further undermines accounting and reporting analytics.

This is just a start of how ABOR/IBOR is better together, and as interest has grown in the technology, powerful new enhancements have been, and continue to be, introduced.

Solution evolution

The evolution of fintech solutions has produced advancements that only years ago seemed impossible. For starters, advanced algorithms have been created that can accurately assess a level of confidence in underlying data. This not only creates data trust and supports faster action, asset managers save a lot of time by not having to prove data quality.

More recently, we’ve seen the introduction of advanced portfolio analytics and modeling capabilities. This supports performance tracking, liquidity and private investment pacing, position rebalancing and richer reporting. As a result, asset allocators can fully leverage data and report with confidence on positions and performance in areas from transaction capture and valuation to general ledger and accounting to analysis and modeling. 

Today, these small-to-mid-sized firms can have access to a comprehensive library of reports including linked and annualized returns, contribution/attribution, draw down measurements, risk metrics and robust exposure reporting. There’s portfolio modeling for stocks, hedge funds, private equity. Liquidity modeling can reflect custom gates and terms. Pacing models can enable flexible capital call/distribution scheduling and simulation to anticipate cash flow. And reporting has now become so sophisticated, heatmaps can provide fast, at-a-glance understanding.

Resolution and revolution

Simply put, technology is now enabling foundations, endowments and family offices to punch above their weight. Alternative investors can more effectively manage assets with less effort, greatly increase understanding via multi-dimensional data views, make timely and informed decisions and better control their positions.

For alternative investment organizations, this continued evolution is not only resolving age-old obstacles, it could introduce a revolution that dramatically reshapes the competitive landscape of investing -- and in their favor, for a change. 

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Michael Maguire is chief revenue officer for Ledgex, a multi-asset class portfolio accounting solution built by investment office professionals. The company enables investment firms to confidently and successfully manage complex asset portfolios with game-changing data accuracy, transparency and timeliness. For more information, please visit www.ledgex.com.