How alternatives fund managers can handle data management challenges

What challenges in data management are unique to the alternative assets space?
The big challenges arise from the opacity of alternative assets. It’s not easy to gather consistent information. For the investor, even when starting at the very beginning of the investment cycle, every notice is formulated in a different way and delivered at a different frequency.

It’s also difficult for GPs to agree on what the real standard is, and what the best standard is. Not having a standardized approach means the real challenge is collecting consistent information and giving the client a good basis to take decisions. The technology is sophisticated but that is a challenge we know how to solve. The bigger challenge is getting frequent, consistent data. 

How are GPs changing their approach to data management?
Investors are not just looking for performance data from GPs. They also need non-financial information on socially responsible investments or impact. This is a new, urgent challenge for GPs, and is a specific issue for the alternatives market.

In the early 2000s, investors saw liquid assets as complex, difficult to trade, and information scarce and inconsistent. At the time, fund managers provided the entire value chain, including administration, cash management, and depositary, and investors complained that this bundling led to a lack of transparency about costs and efficiency. 

Since then the paradigm has changed completely. The value chain was broken up, and investors were directly appointing the providers of different services, which has brought a lot of transparency to the market. This made it much easier for investors to understand where the value is, become more efficient, and negotiate better terms.

We still hear that alternatives are a different type of market and there is truth in that. Of course, there is less information and transparency than in the liquid markets, but these things can be brought into the alternatives space as well. Investors are gathering more and more data so they can make clear decisions based on accurate and transparent information.

Performance – net returns to investors – is also affected by costs such as inflation and those related to hedging, so investors need to make sure these are factored in and that they do not leave a single cent on the table. Efficiency gains are both desirable and inevitable, and the successful GPs will be the ones that are proactively proposing these improvements to their clients.

How can GPs manage increased regulatory demand for transparency?
The challenge is bigger than regulatory demands. Of course, regulatory demands are mandatory but there are standards. The business case for additional voluntary commitments is compelling, but here investors are creating discretionary rules for themselves. For example, the Net Zero Carbon Alliance, which commits signatories to transition their portfolios to net zero while meeting their fiduciary duty, wants to have standards that work in an area where there are no specific rules.

So, investors are defining the rules of the game – the taxonomy – with the hope that governments will follow their lead. On a positive note, clients are consulting among themselves and developing clear guidelines for the industry.

How is data availability affecting LPs’ decision-making process?
LPs do need data, and are asking for support, but the major point they face is a lack of standardization, a lack of digitization of the information, and difficulty collating the data and having a consistent approach to analyzing it.

These issues are faced by the largest insurance groups and the smallest pension funds, but some are better placed to solve these challenges. Investors that have scale can build solutions internally, which the smaller investors may not be able to do.

How can ESG data be a source of competitive advantage?
ESG is such a large topic with so many different angles, that managing ESG data in a simple and coherent way is not easy. What does it mean and what does the client need? I have the impression that sometimes we overengineer ESG stuff, and the solutions don’t always answer the client’s demand or match the client’s needs.

Clients need ESG information that doesn’t just give a score on a website but that can lead to action and inform the client about which asset they should hold, and from which they should divest, to improve their portfolio from an ESG perspective.

The golden rule is listening to clients and hearing what they are asking for. This doesn’t always mean that everything needs to be tailor-made, but it is critical that you understand what the major requirements are for different clients and identify the most applicable and appropriate answer.

How might digitization influence asset management in the next ten years?
Hugely. It will have a massive influence on all asset managers. But the approach to digitalization should not be linked to the size of the asset manager. Digitization isn’t just relevant to large asset managers; smaller managers can be much more agile and easier to work with.

At the end of the day, this is what clients want: someone who can support their needs, answer rapidly, deliver performance, and support them with data.

About
Angela Summonte is the Global Head of Asset Owners at Alter Domus, bringing more than twenty years of experience leading sales activities in the banking industry. With more than 4,100 employees across 37 offices and over $1.8tn in global AuA, Alter Domus is a leading provider of integrated solutions for the alternative investment industry and is dedicated to serving private equity, real assets, and debt capital markets.