Future of Alternatives 2025: The Future of Value Creation in Private Markets Is Digital

Alternative fund managers and investors will need to embrace growing pressures for digital transformation across the industry to compete effectively and drive value creation

Rapid technological innovation is creating a more digitally driven world economy. Every sector must adapt and redefine the way business is conducted at all levels, and the private capital industry is no exception. ‘Digital transformation’ has become a widely discussed concept among alternative investment stakeholders seeking to capture the increasing benefits of integrating technology into their processes. Simply put, digital transformation is a broad banner for the process of adopting digital technologies and solutions to reimagine or improve existing operations and services, with the goal of enhancing firm value. 

As the speed of digital advancements increases, fund managers and investors both agree that technology will play a bigger role in private markets over the next five years. More than half of fund managers surveyed by Preqin for Future of Alternatives 2025 see fund operations (55%) and investor relations (53%) benefiting significantly from the use of technology, compared to only 4% expecting no benefit in these areas (Fig. 1). On the LP front, 74% believe technology adoption in investor reporting will offer significant business benefits by 2025, while 62% have the same outlook for fund operations (Fig. 2).

What Is Driving the Digital Trend?
The alternative investment industry is no stranger to technology – information has always been its lifeblood – but competition is rising across all asset classes as assets under management (AUM) continue to soar. Preqin’s AUM forecast model highlights continued growth in the capital base managed by GPs globally over the next five years. Global AUM is expected to reach $17.2tn at the end of 2025, up from $10.8tn at the end of 2019 – representing a CAGR of 9.8% over the period. 

With capital pouring into the industry, challenges are mounting against fund managers searching for an edge over peers at every stage of the investment lifecycle. Research by KPMG found that rising fee competition and cost pressures were key structural drivers for alternative fund managers considering the digitization of their business over the next three years, with price competition between GPs expected to heat up. Improved management fee alignment between LPs and GPs was a key area for over half (56%) of global investors, according to The 2020 Preqin Capital Fund Terms Advisor.

LPs are also demanding more transparency and seamless data sharing from their GPs to make more informed risk management decisions. As institutional investor portfolios become increasingly complex, diverse, and globalized, these aspects can prove a major stumbling block to fund commitments. A significant majority of global alternative investors we surveyed said that inconsistent reporting formats (73%) and insufficiently detailed information (66%) from fund managers are key challenges to investing from a technology perspective (Fig. 3).

Embracing digital transformation has emerged as necessary response in the industry to effectively address the hurdles presented by rising competitive forces and the changing needs of LPs.

Technology Adoption Is a Must, Not a Differentiator
There is no doubt that technology will play a key role in the next wave of industry growth over the coming five years. As the use cases for emerging digital innovations like big data analytics, artificial intelligence (AI), and blockchain become clearer, adoption will only accelerate. We expect the advantages of technology will go far beyond traditional cost-saving automation and paper-process digitalization for fund operations or compliance – it will more holistically address the entire alternative investment value-chain.  

The technological capabilities allowing for smooth, fully digital investor journeys, AI-enhanced due diligence, greater disintermediation, and new data-driven investment strategies are becoming a more widely adopted reality. Private market stakeholders that are willing to fluidly redesign existing business models and adapt to a more digitally oriented world will flourish. Going forward, being technology led will become an expected standard among GPs and LPs – not a differentiator or a source of competitive advantage. 

Download a data pack containing all the charts in our regional articles for Future of Alternatives 2025. For more predictions and projections on the future of the alternatives industry, visit Preqin's Future of Alternatives 2025 Content Hub.