The industry was not ready for its rapid proliferation

A decade ago, only a select few alternative asset managers (AAM) possessed the requisite size and operational maturity to effectively scale up their operations. These mostly US based industry leaders made significant investments in technology, enabling them to establish robust in-house back and middle office capabilities.

Meanwhile, most AAM faced the challenge of not only capturing their share of the rapidly growing assets under management, but also servicing them. Whilst deal teams successfully scaled their operations by leveraging growing ticket sizes and enhanced services offered by banks, many AAM resorted to taking shortcuts, compromising on operational efficiency, and delaying the implementation of advanced technology solutions.

Many AAM outsourced, either by choice or for lack of substance in the fund domicile, back- and middle office operations. As the demand for alternative assets services surged, numerous service providers from the hedge or trust industries, and the larger integrated banks with a heritage in custody and fund administration, entered the market but encountered challenges in adapting their operations. The industry faced additional obstacles due to the lack of adequate systems and qualified resources, impeding its ability to scale rapidly, increasing regulatory requirements and more bespoke demands from institutional investors.

From Nice-to-Have to Mission-Critical: Automation and data management

Establishing efficient operations, in particular robust data management capabilities, is paramount for both AAM and asset service providers (ASP) to remain competitive and ready to leverage the power of potentially disruptive forces such as AI.

AAMs must prioritise the implementation of ever-improving IT systems and achieve a high degree of process automation. Neglecting these advancements will impede their ability to meet increasingly stringent service quality standards, scale operations, and safeguard their profitability. Adequate funding is crucial to support strategic, long-term initiatives, particularly in developing robust data management capabilities to regain control over data ownership and ensure quality monitoring.

While many ASPs have already embarked on this transformative journey, they also have a unique business opportunity. Many small to mid-size AAMs will lack the resources to build adequate data management frameworks. By providing the right infrastructure, ASPs can not only grant their clients access to quality-checked data for seamless operations but also expedite decision-making processes through effective visualization tools.

Key success factors include establishing dedicated data management governance to guide decision-making. Moreover, a deliberate shift in hiring is necessary to bring in new profiles such as IT architects or data scientists from diverse backgrounds, injecting fresh perspectives and expertise. Alternatively, fostering joint business relationships with FinTechs can also drive innovation.

It is essential to think big while starting small. A global data strategy should be defined, but its implementation should align with the organisation's maturity and available resources. Starting with a specific process or focusing on static data initially can be a prudent approach.

Only by recognising the critical nature of data quality and control can the industry adapt, thrive, and seize the opportunities presented by analytics and AI-driven advancements.

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