Same soup just reheated

According to the second annual edition of Dynamo’s frontline insight report, entitled Analysing Trends, Identifying Challenges, and Harnessing Insights from Leading LPs & Asset Allocators, LPs’ priorities remain unchanged in 2023, with the removal of manual data tasks and introduction of automated workflows top of the list.

This is followed by the ability to better enable their teams to manage new investment structures. Earlier this year, IBM’s head of capital allocation, Peter Hermannsberger, highlighted how the divergence of regulatory and economic perspectives on capital allocation is changing LPs’ expectations towards their GPs.

Third on the LPs’ list of priorities is the creation of strategies to optimise team productivity and build workflow efficiencies.

Dynamo notes in its report that while the overall priorities for LPs have not changed in comparison with the company’s 2022 survey, their order has been reversed.

Investment process
The report hones in on key priorities during an LP’s investor process, where respondents to the survey ranked document collection and data extraction, managing fund manager and fund diligence, as well as a comprehensive understanding and look through portfolio exposures, as essential.

Few institutional investors ranked their ability in portfolio management and data management as ‘excellent’, with only 14% responding in the affirmative for the former and 7% for the latter. The majority said they were ‘very good’ (46% for portfolio management and 37% for data management) or ‘good’ (32% and 41%).

Consequently, in response to priorities from a technology perspective, portfolio management systems ranked the highest, with data automation and research management systems following suit and 50% of LPs expecting their tech budget to increase during the coming 12 months.

Risk factor models
According to the results of the survey, 47% of LPs use risk factor models for their total portfolio and a third of those use different risk factor models for their private and public investment activities. Dynamo further states in its analysis that this leads to siloing off investments within the overall portfolio, a sentiment Hermannsberger echoed in his speech earlier this year.

The report notes that the most popular approach to including private assets in a risk factor model is mark-to-market valuation returns, with 35% of survey respondents using this approach and a fifth using GP-supplied valuation returns for the same purpose. A small group of LPs (10%) uses cashflow instead of valuations.