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The world of alternative assets continues to grow and evolve. As of December 2018, the latest available data, the alternative assets industry has reached a staggering $9.45tn in assets under management (AUM). Private debt and natural resources have emerged as standalone asset classes in the past five years, growing from $445bn and $395bn as of December 2013 to $749bn and $701bn as of December 2018 respectively. The industry has also become increasingly global with activity surging in emerging markets such as China, Southeast Asia and Latin America.
As the footprint of alternatives has expanded, regulation has increased, technology has advanced and competition has ramped up. Although the introduction of directives such as AIFMD and BEPS has demanded a greater focus on compliance, regulation can also provide investment opportunity: the recent Opportunity Zone Program in the US offers private real estate investors significant tax benefits. As artificial intelligence (AI) and machine learning capabilities advance, many fund managers and service providers are looking to utilize the value these systems can create. And with more fund managers and investors active in the alternatives market than ever before, participants are facing fierce competition for capital and assets.
While technology does present significant opportunities, service providers are facing more scrutiny in the face of growing demand to adapt to changing technologies. Since more fund managers than ever before are using technology in their investment operations, those service providers that do not offer or utilize the required processes may struggle to attract partners.
The discussion around technology and its impact on alternatives is fervent. Advancements in fields such as AI have begun to transform the way service providers can assist fund managers and investors alike, helping to speed up vital processes such as benchmarking and due diligence. By adopting technology like AI, service providers are delivering solutions with greater accuracy and in a speedier, more efficient process
“Most service providers are primed to be disrupted by new tech” - North America-based <$100mn fund manager
“Service providers need to operate in a seamless, efficient, cost-effective manner. Using technology as much as possible yet also having clear communication” - North America-based $100-249mn fund manager
While advances in technology are influencing the investment landscape, more compliance directives are introduced by regulatory boards, and fund managers have a responsibility to adhere. Service providers with expertise in local and international regulation have the opportunity to capitalize on the internationalization and increasing amount of legal frameworks in alternatives.
The value of a service provider centers around the relationship between the quality and cost of service. In Preqin’s latest fund manager survey, the majority of respondents said they changed service providersdue to either “dissatisfaction with quality of service” or “cost” (Fig. 4). However, when considering their service provider partners, quality looks to be the primary focus of fund managers. Those service providers able to provide quality solutions at competitive prices look well positioned to succeed in the current market.
Preqin’s Service Providers in Alternative Assets report provides a view on the most active firms across alternatives, and features expert analysis on the key developments in the industry from our partners Alter Domus, EisnerAmper, Capstone Partners, IQ-EQ and TMF Group.
Consider auditing. Machine learning can analyze and process a large number of contracts much faster than current manual processes involved in day-to- day auditing - saving time, money and resources. That's the technology that Smart Auditing is built on.
We set about creating our Smart processes by partnering with various vendors and have developed several modules that have increased efficiency in the audit process. We've created verticals for revenue recognition and employee benefits amongst overall utilities.
“ECAP” has made the investment in time/capital and processes to get Al processes up and running. We've built out Al capability so that our clients and employees don't have to start from scratch.
Al will get better and better as more informationis dumped into these systems; whereby,more value will becreated. Fortunately, we work in a data-rich industry, so investment processes are prime for Al disruption.
Investors will be able to gain granular, intelligent information on large portfolios with accurate benchmarking all through an Al solution. The way we value and monitor assets, companies and portfolios will be significantly more advanced in few years' time.While some aspects of theseprocesses can be done in programs Like Excel, Al provides accuracy and the ability to learn and constantly improve its own processes.That's where the value is. You can't teach a spreadsheet.
Entailing over 35 yrs. of buy-side/sell-side experience in the capital markets and working with closely held companies, Jeff Stone, Managing Partner, Eurasian Capital, LLC.,is responsible for identifying emerging opportunities and strategies for existing markets and segments, thereof.