PE needs to spend more on data management

According to new research, the majority (70%) of alternative asset managers said they need to spend more on data storage, management and analysis to handle increasing pressures and demands on returns and reporting.

State Street’s Assessing the Outlook of Professionals in the Insurance and Investment Industries report found around half (56%) of the 122 professionals working on the alternatives industry, said their investment operations are built to scale up to deal with the increasing volume and complexity. While 17% of respondents disagreed that their operations will enable them to scale up. 

Investors’ increasing demands

Of those surveyed, 21% believed their firm had been highly effective at responding to increasing investor demand for transparency and additional types of data, while 61% felt their firm had been moderately effective. At the same time, a minority (8%) said their firm’s ability to respond to LPs increasing demands hasn’t been very effective, while 2% said their firm wasn’t effective at all.

“To avoid falling behind competitors due to data inefficiency, alternative fund managers must develop agile and nimble strategies, while stripping out complexities,” said Vincent Georgel-O’Reilly, head of alternatives, Europe, Middle East and Africa at State Street. “The firms which take a strong technology led approach to meeting the evolving needs of their clients will set themselves apart from competitors. As a result, we expect outsourcing to gain momentum as firms will turn to external service providers to make the best use of their data.”

ESG data management

When asked how important they think analysing and reporting ESG data will be to their firm’s success over the next three years, less than a quarter (21%) expect it’ll be very important. Similarly, 34% felt it will be moderately important, while 21% said it will be somewhat important.

On the flip side, only 8% of alternative asset managers don’t expect analysing and reporting of ESG data to be important to the firm’s success over the next three years at all.

State Street found fewer than half (41%) of respondents expected to see a slight increase in the importance of ESG within PE during the next three years, while 27% expected its importance to increase dramatically. At the same time, 16% of participants expected ESG importance to stay the same, while 8% expected it to decrease slightly and 2% expected to see ESG’s importance decrease dramatically.

Reporting and transparency

When asked how they see the pressure LPs place on reporting and transparency levels in private equity over the next three years, more than half (55%) of respondents said they expect it to increase slightly. Similarly 27% said they expect it to increase dramatically.

On the other hand, while 13% of alternative asset managers expected LP demands to stay the same, only 1% expected it to decrease dramatically.

“The global pandemic has accelerated not only ESG integration among alternative managers in EMEA, but also investors’ demand on transparency around the ESG profiles of their portfolios,” added Georgel-O’Reilly. “European regulation, such as the ‘disclosure regulations’ related to sustainability, and the climate-friendly expenditure in the EU’s COVID-19 recovery plan, is set to positively influence European firms ESG investing behaviour in the long-term.”

State Street’s report, which was conducted by market research agency PollRight, received responses from 122 alternative investment professionals (including private equity, hedge funds and real estate) and 103 insurance professionals. The research was conducted between 17 August and 14 September 2020.