By Guillaume Fiastre
The alternative investment space is getting hotter. Investors have always been keen on private equity and real estate, but now they are looking further afield at infrastructure – and even at real assets such as timber, agriculture and energy.
This increased activity has brought with it increased regulatory and investor scrutiny. Growing competition, new regulations – and especially the controversial Alternative Investment Fund Managers Directive (AIFMD) in Europe – are disrupting established working practices. Investors, dealing with the aftershocks of the sub-prime crisis, are even more aware now of the need for close management and are becoming more demanding about due diligence and transparency. Of course, every aspect of the financial services sector is tied up with regulations and compliance issues. But as the new entrant to compliance surveillance, alternative investments seems to be struggling more than listed securities these days especially as valuations are not as simple as just publishing a price.
So, the summary style of semi-annual or quarterly reporting is no longer an option. Even monthly reports – if they, say, arrive 10 days into the next month – are suddenly inadequate to run the business. One third of the month is already gone and the chances of identifying a developing trend and taking corrective measures are more limited. While ‘time-to-market’ has always been an issue for listed securities, it has very quickly become more of a driving factor for alternative investments.
The problem comes down to data – accuracy, timeliness, granularity throughout an organisation from the back office through to the front (and externally to third-party property/asset managers), often with hold-ups and potential errors at each stage. The process needs to become much faster, moving towards real-time, and become far more agile.
Data management, once overlooked, is now a top priority. And the first change must be to stop relying on spreadsheets. They are great tools, but other than basic password restrictions, they enable little control over who opens them and what changes they make, which leads to inaccuracies, duplicated entries and confusion.
Data sources will constantly be in flux and change, so the workflow that governs use of them and the business tools to integrate the data sources needs to migrate from Excel to a corporately-supported front office platform. The goal here is to have consistency policies for data governance and data management/handling as the constant in a world where data itself is constantly shifting and evolving.
Most organisations have their ‘accounting’ environment (be it Excel or a corporately supported platform) as the centre of the universe and usually on an asset class by asset class basis. Some have integrated their accounting books of record for multiple asset classes into a data warehouse.
Few firms have tackled the fragmentation that exists in the front office that lays after the accounting data sources and delves into the other data necessary to run the business, such as external property/asset managers and the business/static data that rarely have corporately supported environments. Asset-agnostic front office platforms that migrate away from Excel fragmentation for front office needs pose a long-overdue solution to reduce operational, investment and decision turnaround time risk.
Excel is not without its merits, but the fragmentation it permits for workflow, data capture and functionality execution create too many challenges in the current market for alternative assets. Changes are dynamic, so when one person makes an alternation, everyone can see what they have done and the impact of their changes and it must carry an audit trail with data and time stamp, which is not within the bandwidth of what Excel does. A corporately supported platform for this, with an amalgamation of all the data and asset classes from the multitude of spreadsheets makes it easier, for example, to try multiple iterations of different scenarios to test the strength of any decision. It also gives total transparency to make auditing and compliance far more straightforward.
Once this is put in place, reporting and analytics capability flow on a timelier basis with more comfort level in the numbers being produced. Fund and portfolio managers can start to be more proactive, taking advantage of analysis and ‘what if’ testing to enable forecasting and future planning, in a way that can be demonstrated and easily communicated to investors and senior management.
Firms with expanding portfolios of alternative investments can’t afford to not invest in technology and data management in order to remain competitive. It will mean investment and change in workflows and corporate culture. Migrating people off Excel to a corporately supported environment is not an easy addiction to forego so almost certainly some disruption too to the business culture is necessary to reach the next plateau. However, it might be the push needed to transform the business into a modern, highly agile organisation. And one with the flexibility to cope with the increasingly competitive market for suitable investment vehicles (and types of investments) that is rapidly emerging.
Guillaume Fiastre is CEO of Taliance
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