Investors plan to give alternative asset managers more capital and in turn pay higher fees. But they also have a request: upgrade your technology.
The road is paved for more alternative investment in portfolios. Limited partners, hoping for better returns that are less connected to public markets, are investing more in private equity, private credit, real estate, and other asset classes.
Over the next 12 months, 62 percent of LPs plan to increase or maintain their allocations to alternatives and more than half of of them plan to increase the number of relationships they have with GPs, according to SS&C Intralinks. Investors wanting to work with more managers is a turnaround from recent years when many were whittling down their lists of managers.
The desire for better technology comes as the industry is fumbling and investors could benefit from more information and analytics on their portfolios. Last year, private equity’s capital flywheel malfunctioned and set the stage for a rough 2024. A fundraising skid has continued and general partners are fighting fires in portfolios.
“On the operational front, LPs believe there are significant opportunities for GPs to improve and enhance their performance, particularly from a technology perspective,” said SS&C after a recent survey of investors.
The industry is making strides in technology and making more information available on private markets. This week BlackRock launched eFront Provider, which offers asset servicers real-time views into their clients’ private markets fund and investment data. And earlier this year, the asset manager said it was acquiring Preqin, a private markets data firm that it will integrate with its Aladdin portfolio and risk management system.
Most LPs (58 percent) are satisfied with the technology capabilities of the firms they work with and 34 percent feel “neutral” about them. Still, 28 percent are frustrated by disparate dashboards and 36 percent say a lack of access to analytics is a major challenge. When asked what would improve relationships with managers, 59 percent of LPs said “better report analytics,” the most popular answer. The next most common response, chosen by 34 percent of LPs, was standardized reporting such as ILPA templates.
In fact, LPs would rather have those things than other more meaningful services. Only 34 percent said that more frequent conversations with portfolio managers would improve their relationship with GPs; 29 percent said relevant thought leadership and industry-related content; 17 percent said more in-person meetings; and just 8 percent said access to better quality digital communication interfaces.
According to SS&C, LPs are increasingly seeking a unified platform to monitor their entire portfolio. Nearly 70 percent said they already leverage technology for portfolio monitoring, but 81 percent also said there is a need for better data aggregation across multiple funds into a single platform. Access by any means is the most important thing, but the biggest frustration for some investors was a lack of tech integration between GPs (14 percent) and a lack of integration with their own systems (13 percent).
Forty percent of investors said a single tool to track private assets with all their GPs would be somewhat helpful and 55 percent said it would be extremely helpful. (Some companies, such as Arch, are working solving exactly that problem.)
“Among those not using technology, there was a strong indication that using a single tool to aggregate data across a private markets portfolio would be beneficial,” SS&C said.
SS&C’s study is based on a survey of 171 investors across the globe, including pension funds, insurance companies, endowments, foundations and family offices.
