Over the last decade, asset managers have increasingly abstained from implementing manual based reporting techniques – preferring to leverage digital solutions instead. But what is prompting investment firms to do this?
While COVID-19 was a catalyst for digitalisation, many managers were already abandoning some of their analogue reporting processes, citing concerns about spiralling costs and efficient use of time. Right now, some managers are facing acute margin constraints due to a combination of intrusive regulations, difficult market conditions and surging labour costs. By digitalising their reporting activities in a clear and structured way, fund managers can net significant savings and obtain economies of scale.
In addition to generating operational efficiencies, digitalisation has a host of other benefits too. In contrast to Excel, SaaS platforms can allow for more flexibility, meaning the quality of the reports being supplied to investors and regulators is much improved.
This comes as both investors and regulators demand more information from fund managers. For instance, the Securities and Exchange Commission (SEC) is proposing that large hedge funds and private equity managers report serious incidents - which may impact their funds – within a day of them happening, in what could pose logistical challenges for firms still running their operations on spreadsheets.
Investors now expect managers to share reports with them in a digital format, or even through bespoke APIs (application programming interfaces) on a regular basis. Fulfilling these heightened reporting requirements is simply not possible if managers are dependent on manual tools. If fund managers wish to work with their choice of mandates in this more challenging fundraising environment, digitalisation will be an expectation of the investor reporting process.
Digitalisation can also support managers when looking to move into different asset classes. Right now, the funds’ industry is going through a period of hybridisation whereby managers are launching new strategies to diversify their revenue sources and draw in a different breed of investors. For example, there has been a substantial spike in long-only and hedge funds establishing private capital funds, an asset class which has performed well and is attracting record inflows.
Launching new asset classes can be an onerous task for managers who are not using a SaaS platform model for their business . The reporting requirements expected from a private equity vehicle are very different to that of a hedge fund. A number of managers who have made the leap into private equity often note that the reporting processes can be challenging and more complex relative to more liquid trading strategies. Those firms with manual reporting systems in place will likely find it harder to transition than those organisations which use robust technology. Having asset class agnostic technology is therefore vital, if managers are to successfully diversify into new strategies moving forward.
Aversion to digitalisation is no longer a feasible option for asset managers if they are to future proof their businesses against disruption. Identifying operational synergies and digitalisation of the reporting process is one way in which this can be done. It will also be a critical enabler in helping managers meet the increasingly complex reporting expectations of their regulators and clients. And finally, a thoughtful approach to digitalisation can support managers when pivoting into new asset classes. The firms who integrate new technologies into their reporting processes will successfully navigate this increasingly competitive market environment.