Private funds are the fastest growing category of investments, with estimates of current assets reaching $10T, and projected to grow to $18T by 2020. As the economy has recovered from the Great Recession, more and more investors have entered into alternative investments.
This spike in both money and investors has significantly increased expectations around how private funds are managed and administered. Investors expect their alternative investment experience to be similar to what they have with banking & public securities: a digital experience that is informative and easy to use.
Unfortunately, the reality in private funds is not meeting expectations, and this is being felt the most by fund administrators. The role and importance of the fund administrator has increased dramatically over just the past 5 years.
In many ways, the fund administrator has become the conduit for the complex interactions between not only the investor and the fund manager, but also for the interactions between the fund manager and other key stakeholders like auditors, attorneys, etc.
Driven by increasing investor expectations, private fund managers are placing greater pressure on their fund administrators to help better service their investors. The clearest evidence of this is that nearly 30% of private fund managers have fired their fund administrator in the past 12 months, as reported in the “Preqin Special Report: Private Capital Service Providers” study that we wrote about here.
With investors in particular, many fund administrators have established an Investor Relations (IR) group to try to better handle communications and interactions with not only their clients, but also with investors.
That said, a new Investor Relations survey on hedge funds from IRHalo shows that investors’ expectations are not being met across a variety of categories including communications and reporting.
There were several insights from the IRHalo study that jumped out at us:
- Investors generally find the quality of data and detail being provided by hedge fund IR groups is unsatisfactory
- Most investors are dissatisfied with the quality of the information provided on their website – and only a minority of hedge funds actually see their website as an IR tool
- Investors would like to see more qualitative information on hedge funds, both within their own reports, and more widely available
In order to better meet investor expectations, progressive fund administrators are looking at technology as a key solution. Longitude Research published a recent report that showed that technology imperatives dominate the “Top 5 Trends” that will shape the next 5 years for fund administrators. “Improve transparency and reporting” was one of those trends, which aligns strongly with the findings in the IRHalo study.
Technology can help fund administrators deliver a better digital experience that makes it easier for investors to:
- See useful digital charts and reports detailing fund performance
- Have the flexibility to look at both account-level as well as portfolio-level views
- Be able to interact & communicate with their fund managers
- Reduce the reliance on paper documents, while also making it easier to access key documents online
Investors compare their experience interacting with private funds to the experience that they have accessing their mobile banking & securities accounts.
Fund Administrators need to be the ones to cross the chasm between investors’ expectations and reality. They can do this more effectively by selecting the right technology partner that can better help them meet the current & future needs of this dynamic industry. Together, they can put the "Investor" back into "Investor Relations".
About John Pizzi and BaseVenture
John is a serial entrepreneur and Fintech leader. He is the co-founder and CEO of BaseVenture. Previously, John was COO of mFoundry (sold to FIS). BaseVenture is an award-winning software company that is helping the alternative investment industry simplify and modernize how private funds are managed and administered. Learn more at www.baseventure.com.