Although new technologies have changed and, in many cases, improved the efficiency of fund administration, many private capital funds are still relying on manual admin processes rather than digital ones.
A recent study by Intertrust Group, The Future of Fund Technology, found that 30 percent of private capital funds are still using primarily – or even entirely – manual processes. Additionally, one-fifth, or 21 percent, of respondents don’t believe automation and new technologies will be vital to competitiveness over the next five years.
Most funds, regardless of size or location, use third-party administrators to run at least part of their business. However, larger funds have the resources to hire third-party admins and do not hesitate to do so. Only 32 percent of smaller funds – those with AUM of up to $500 million – are likely to rely on fund administrators, while 51 percent of funds with AUM of $1 billion and above hire third-party admins.
Just 17 percent of funds manage all their admin in-house, though this rises to 25 percent in the US. But a majority of managers have most of their processes automated, with 70 percent having automated at least half.
Intertrust noted that applying technology to fund administration would help tackle the increasing complexity of fund management with greater automation and data capabilities.
“Growing complexity makes it untenable to manage everything yourself. More data adds to complexity and increases reporting demands. It isn’t getting any less,” noted Jonathan White, global head of fund sales at Intertrust.
According to the report, more than 23 percent of private capital managers say they will only use new technologies if they have no other choice, and almost one in 10 (8 percent), actively avoid technology unless the regulator has specifically approved or mandated its use.
Even though one-third of respondents prefer manual processes, more than 50 percent of managers surveyed believe technology adoption could make an immediate impact on investor relations and reporting. Forty percent of funds plan to adopt technology for portfolio accounting, and 31 percent plan to use it for marketing and fundraising.
Looking at a range of automation and other technologies and how they are being applied to fund administration, almost two-thirds of funds use data analytics as part of their fund administration process.
Investor relations and reporting, portfolio business intelligence and portfolio accounting are all ideal for automation and other technological enhancement. However, the study found regional differences, as funds in the US are less likely to use technology for investor relations and reporting, but more likely to use it for business intelligence. The UK and Jersey are more likely to take a technological approach to portfolio accounting.
There are also contrasting attitudes between large and smaller private capital funds regarding technology, with 90 percent of large cap managers planning to use their buying power to invest in pioneering technology as soon as it becomes available, compared with just 31 percent of small cap managers.
Implementing technology could help smaller managers differentiate themselves from larger managers, noted Chitra Baskar, chief operating officer and global head of funds & product at Intertrust Group.
“In the short term at least it’s likely that big funds will grow bigger. Smaller funds will have to innovate to differentiate themselves. They will be under pressure to reconsider their processes, and the best solution could be to work with a third-party provider. Today, technological capability is an ideal way to do that.”