It is difficult to name a sector that has not been impacted by digitalization in recent years. Somewhat ironically, however, the very private capital providers whose investments in tech startups are rapidly driving change in other sectors have hardly undertaken any steps to develop their own business models. In the meantime, pressure within the sector is rising, driven by lower returns, greater transparency, and an ever-growing volume of regulatory requirements.
Does digital transformation offer viable solutions to this predicament?
Nowadays, most private capital investors have access to commonly used market databases. Fund and investment vehicle administration activities are often performed using in-house accounting and financial reporting software or by outsourcing the related work to an external partner. However, the solutions adopted frequently remain isolated from one another. The most effective source of leverage for boosting efficiency and cutting costs comes from closely integrating all of these activities in a single system that captures all relevant data and documents digitally and centrally, thus effectively eliminating the redundant storage of data and minimizing the risk of errors.
An AssetMetrix survey reveals that 13%* of the GPs questioned are already able to provide their LPs with quarterly reports, capital account records, and portfolio summaries in standardized formats, which could be easily and efficiently transferred to an integrated platform.
Validated data collected in this way can then be used to generate customized reports and analyses. Various reliable statistics-based techniques are available to forecast cash flows and performance, measure risks, and make benchmark comparisons. These reports can be accessed 24/7 via the internet or cloud services.
Many of the more time-consuming workflows can be optimized by replicating them digitally in the integrated platform. Instead of isolated Excel-based solutions devised by individual employees, workflows can be mapped out clearly and simply within the system.
Before introducing a new solution of this type, it is typically necessary to take a “make or buy” decision. At the present time, there are no comprehensive, easy-to-administer systems on the market and creating an integrated digital platform in-house would involve the use of extensive resources. The alternative is to outsource these activities to an asset servicer who provides access to tried-and-tested integrated digital platforms and takes on some of the clients’ back- and middle-office activities.
The potential benefits to be gained by freeing up in-house resources through rigorously digitalizing and optimizing workflows and reports are immense. Depending on individual circumstances, costs for LPs can be reduced by around 35%. In the case of GPs, we see opportunities to cut costs by up to 25%*.
Asset servicers provide private capital investors with a prime opportunity to optimize their business models going forward and embrace digital change practically “overnight” through selectively outsourcing a range of tasks. By making this move, LPs and GPs can be more relaxed about declining returns and increasingly stringent reporting requirements.
*AM study and survey
About Asset Metrix
AssetMetrix is Europe’s leading provider of high-end analytics and tailored asset servicing for private capital investors and partner at Handelsblatt European Private Equity Summit 2017.