Investing in new tech is major challenge for GPs

The need for continuous investment in next-generation technology has been identified as a main challenge by 83% of GPs, according to a new report.

Aztec’s ‘Differentiation through data’ report, which surveyed 300 alternative investment firms in the UK, Europe and the US, also found that 39% of respondents cited constant tech investment to be a main challenge when it comes to data.

The findings were divided into two categories; firms with funds less than €250m and firms with funds of more than €1bn.

In addition to the desire for continuous investment in new technology, the survey found that both smaller (100%) and larger-sized funds (91%) have a dedicated resource for their data strategy.

However, when it comes to outsourcing, less than half (44%) of larger funds were confident in the quality and accuracy of third party data sources, dropping to 19% for smaller funds.

For ESG reporting, smaller funds were more likely to mix internal management with third-party support to collect and report ESG data (91%) than larger firms (56%).

Operational trends awaken innovation

The report also identified five data trends for fund operations.. First, was the desire among LPs for instant portfolio data on demand, particularly now that other industries offer similar services such as online banking, healthcare providers and insurance claim apps.

However, according to the report, instant portfolio data on demand proves costly and complex for GPs to implement, not to mention the resource dependency in assembling a dedicated team with relevant experience to execute quick and informative insights.

Another key area of focus was ESG data collection. GPs are designing new ways to collect ESG data from portfolio companies to report to LPs in light of the recent arrival of Sustainable Finance Disclosure Regulations (SFDR) and the upcoming requirement to report funds’ Principle Adverse Indicators (PAI) from June 2023. Some GPs have appointed ESG specialists to obtain this data, while smaller firms tend to have outsourced this task to third parties.

Another trend identified was innovative technologies extending to hyper-personalisation systems, where investors can be targeted in a personalised way using recommendation engines. Several marketplace providers offer ways of beginning a bespoke approach to investing.

The report also found that increasing regulatory requirements are driving transparency and disclosure technologies. The FCA has developed its own sustainable investment policies and adjusted relevant regulations in response to Brexit. Meanwhile, the EU has published the proposed changes to AIFMD.These updates lead to a greater reporting burden. According to Aztec, automation can assist gathering and sharing data to LPs. However, the report stressed the importance of a robust data strategy that is flexible in its response to the growing demands for data transparency, management and distribution.

Lastly, benchmarking capabilities were marked out as another important trend. Despite many industry players developing data platforms and analytics capabilities, many GPs still struggle with data quality, timeliness, and lack of right skill sets. Possessing data which allows for peer benchmarking can be a valuable tool for setting objectives and incentivising growth. The challenge resides in trusting the information and its quality, said the report.