How digitization can revolutionize onboarding

With more control over their retirement funds and changing regulations, individual retail investors have been given greater access to private equity funds. However, onboarding a greater number of investors, particularly those that are unfamiliar with private equity, can be challenging, so managers are turning to technological solutions to make this process easier.

According to David Genn, CEO of UK-based technology provider Goji, as more high-net-worth investors and private wealth clients look to invest in private equity, asset managers and their fund administrators are looking for solutions to give these new investors digital access to private funds. Genn said Goji provides technology solutions to asset managers, GPs and fund admins to “digitize the investor journey,” which, in turn, gives managers the tools to be more flexible in how they fundraise.

As regulations have been introduced or amended to give retail investors access to private funds, Genn said technology is helping managers determine whether specific investors meet the accredited investor definition, which varies by jurisdictions.

Managers are also relying on technology to digitize the process of certifying that investors meet the necessary investment standards, and to automate the KYC and AML checks. And the digital process gives managers an easily searchable and reusable audit trail for the firm’s compliance department to show everything was complete.

Genn said more often managers are asking for facial recognition for investors coming into their private funds to try to take the manual process out of verifying an investor.

“For us at Goji, we also digitized the subscription process as well. We have the fund data room, which means the investors can review information about the funds online, and they can complete the subscription document online as well. There’s a digital workflow that means you know exactly where you are in that process at all times.”

Pain points

Genn also noted that often the biggest pain point for private fund managers is the onboarding of new investors: capturing investor data, verifying it, and then having an audit trail to prove the information has been verified. The subscription process, as well as the digital presentation of data to investors, is also painstaking, for which Goji offers technological solutions to make the process more manageable for GPs.

Digitization is also critical for private equity funds operating globally, investing in various jurisdictions and/or marketing to investors in different countries, by making it easier for managers to keep track of different regulations and investment requirements in different countries.

“For example, the ‘accredited investor’ definitions are different in various jurisdictions, and it’s a different process. The US is probably on the more complicated end of the accredited definition where Luxembourg is more difficult with anti-money laundering (AML) and know your customer (KYC) requirements. You have very different standards so we have a process for managers to onboard investors from any country and we can work with the jurisdictional differences from country to country.”

Additionally, managers just need to understand that verifying the identities of and onboarding retail investors is a different process than the process for institutional investors or large corporate investors.

From the investors’ perspective, Genn explained that individual investors have a very different way of evaluating a fund in which they may invest, which is also aided by technology.

“If you have a digital platform, when onboarding a client you can tailor what information you provide to them so they have the information that’s going to help them make the best investment choice.”

Looking forward, Genn expects the entire investment process will be technology-driven.

“We will see private equity managers using networks to distribute the funds. As you look to diversify where you raise capital, you’re going to need to use technology to push out the investment opportunities and reduce the barriers to access.”

“As globalization becomes the norm for this sector, technology is going to be key for managers to be able to capitalize on that opportunity,” Genn concluded.