Alternative Investments Management Encounter Challenges Technology Has Yet to Solve

For wealth management firms that offer their clients alternative investment opportunities, a nearly universal theme has emerged, support and administration are hard for everyone. The challenges firms face can be pinpointed to one source: data. In F2 Strategy’s recent survey, RIAs, wealth managers and asset managers cited the quality of data, the format of data and the usefulness of data as their biggest obstacles to engaging in streamlined approaches to management.

While technology solutions can alleviate some of the headaches associated with alternative investment data, unfortunately, the industry is not yet in a place where it can eliminate the problem. Despite this, the survey showed that most firms offering alternative investment opportunities use a variety of technology tools to manage the process and provide performance reporting, which has become a core feature for firms. 

Trend 1

Nearly Half of Firms Actively Involved in Alternative Investments Expect Deceleration This Year

Insights and Actionable Intel

  • Over the past two years, AUM growth has steadily risen, but now 47% of firms actively involved in the alternative investments space expect to decelerate their AUM growth in 2022 while 40% expect to accelerate AUM growth
  • In some cases, firms report the deceleration is due to client demand not being as strong as they anticipated
  • All agree alternative investment opportunities are cumbersome to manage citing operational issues and quality, data format and usefulness of data as major stumbling blocks
  • Take Action: If your firm intends to offer clients alternative investment opportunities, be aware of additional costs due to operational challenges, and consider implementing solutions to help address some of the issues, like alternative investment data aggregation tools.

Trend 2

11 out of 15 Firms Use Third Party Tools to Manage Alternative Investments

Insights and Actionable Intel

  • Data is the biggest challenge for firms; due to the inconsistency of formats manual intervention is always required
  • Technology solutions take some of the wrinkles of management, but currently even the best technology doesn’t solve all of the challenges associated with managing alternative investment opportunities
  • Take Action: Until guidelines and standardization in reporting for alternative investments (like those published by the Institutional Limited Partner Association) are universally adopted by the industry, the data issues which require manual intervention will persist. Advisors who allocate funds to alternative investments should push fund managers and administrators to adopt standardization and solve the reporting issue at the source.

Trend 3

93% of Firms Use a Performance Reporting Tool on Alternative Investments

Insights and Actionable Intel

  • The ability to report on analytic attributes specific to alternative investments (e.g. IRR, MOC, total commitment, unfunded commitment) has become a core feature firms need to have
  • Differentiation between vendors has decreased over the past decade as more performance reporting solutions have steadily added these capabilities
  • In the saturated vendor landscape of performance reporting solutions, alternative investment reporting capability is no longer the differentiator it once was
  • Take Action: Investors with exposure to alternative investment asset classes expect analytic attributes specific to alts as a standard feature of their investment reports. Fortunately, many of the performance reporting solutions in the market today meet the requirements.
Survey Information: The data in this report is pulled from a survey conducted by F2 Strategy in May 2022. The survey includes responses from 20 leading RIA, Wealth Management and Asset Management firms representing $3 trillion in assets.

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