New innovative portals are dramatically improving the investor experience

“Investor experience” is a new buzzword in private capital, but it has not yet been fully mapped out as a separate, distinct and crucial area of expertise. LPs in particular – though also regulators and other stakeholders – are demanding better communications and easier access to information. They’ve become accustomed to user-friendly interfaces, from Amazon to their personal banking apps, and expect the same from their investor portals.

A venture capital fund may exist for a decade, for example, but make distributions only after five or more years. The de facto product of GPs during those intervening years becomes demonstrating growth through reporting. The metrics, returns, valuations and other statistics – and, increasingly, how they are presented – are vital to ensuring a positive investor experience.

Yet, investor portals today are frequently frustrating and time-consuming. Pulling distribution schedules and K-1s, for example, should not test anyone’s patience. Many often do just that, however.

These frustrations are ironic because private capital today is undergoing a digital transformation that aims to overcome these problems. New, innovative platforms and financial technology solutions in particular are disrupting how GPs communicate, changing how they conduct business, and defining high-performance investor experiences before they distribute returns.

These new tech solutions offer better and easier ways that are LP-friendly, improving efficiency, transparency, and, most importantly, the investor experience. They can fill the gaps that inevitably arise from clunky but well-entrenched spreadsheets and PDFs.

But a fair amount of confusion surrounds them.

Optimization 

Off-the-shelf general ledgers out there, for example, come in many different shapes and sizes, but many struggle to share data between different teams. Workflow automation between different teams and investors is key for maintaining both data integrity and ensuring a proper bandwidth for sharing data that’s in line with today’s (and tomorrow’s) growing information flows.

Solutions that offer true partnership-level accounting capabilities facilitate instant data sharing without the need for reconciling spreadsheets, greatly reducing potential errors. A properly configured, fully automated digital environment, furthermore, can be deployed quickly and intuitively in days or even hours rather than in weeks or months to achieve this automation.

Other powerful trends are driving the adoption of these tools that have become central to the digital transformation occurring within finance. In today’s tough markets and rising capital costs, optimization has become a necessity. At the same time, a shortage of skilled accountants and other talent is driving costs up. It is becoming ever more important to leverage qualified human labor smartly.

This is where recent technological advances can make the biggest difference. Automation and multi-manager platform administration can save the finance team countless person-hours and allow the CFO to focus on strategy and communication with investors.

Transparency 

Similarly, today’s portfolio data tools can dynamically access direct and indirect portfolio investments – or investor allocations – making it possible not only to share information almost in real-time but to share types of information that weren’t readily available from yesterday’s templates. It has never been easier for LPs to follow the progress of each portfolio company and its interactions with the GP.

The cloud, with its nimbleness and the microservices it offers, is probably the most powerful engine fueling this shift. A true software solution – as opposed to the many professional services on the market that are only technology-enabled – allows companies to offer plug-and-play functionality not only to fund administrators and investors, but also to auditors, tax preparers and other third parties.

Importantly, the most successful new portals do not require firms to discard spreadsheets and other well-established older technologies and other finance industry staples, but rather build on them, turbocharging them with what the best advanced digital analytics of today have to offer. Deal pipelines are now quite easy to track, and the cloud makes it easier to channel the power of AI to help identify lucrative possibilities and counter-intuitive risks alike.

The new technologies typically come with a fresh look – think branded investor portals – and even a new work culture and other possibilities. Co-sourcing, a fund administration model where GPs, external fund administrators and tech companies collaborate productively in the same digital environment, is a roaring new trend in private equity, for instance. In the 2023 Ernst & Young Tax and Finance Operations survey, 95 percent of responders said that they are more likely than not to co-source some of their finance activities by 2025.

The shift is also a testament to the improved security in the cloud, which now makes it arguably even safer than legacy fund administration tools. After all, a digital system is only as secure as a few passwords, while maintaining multiple copies of the data, as often happens with traditional outsourcing models, comes with multiple vulnerabilities.

Few in the industry expect older technologies such as Excel to disappear overnight. Yet the fundamental demand for smarter accounting and smoother communications with investors and other stakeholders will only grow stronger. The world of private capital, like those of other industries, is transforming fast, and the technology is already there to make that transformation beneficial to companies and investors alike.

 Bill Ward is chief executive officer at Ark PES.