Our survey and report on the future of fund technology reveals that private equity funds often lag behind in terms of digital evolution. We consider why and how they should adopt technological innovation
Private equity funds could become more competitive by embracing digital technology and automation. This is the key message of our recent research and report, The future of fund technology.
We interviewed 300 high-level decision makers in private equity firms, using the results to explore the tech landscape of private funds and the ways they can harness technological innovation to improve performance and the customer experience.
The survey found that a sizeable minority of funds miss out on innovation opportunities. We found that a third of private equity funds still use mostly – if not all – manual processes. And a fifth of those polled don’t think automation and new technologies will be vital for competitiveness over the next five years.
These funds risk being left behind by more advanced competitors. The 68% who say automation and digital technology will be vital are the funds that will shape the years to come. Automation gives private equity funds an advantage. The 23% whose processes are already fully automated shows what the future will look like.
The key is data: doing more, understanding it better, and controlling it better. There is still time to catch up, but tech-skeptical funds need to move quickly.
Where are funds currently using technology?
Where digital technology, such as AI, is used by funds today, it is primarily used to drive investment strategies. The technology could certainly be used more broadly in the back office, where data analysis and machine learning should be a priority. This could have an immediate impact, for example, on the areas our respondents consider to be the most resource-intensive: managing securities transactions, distributions and reporting to investors (28%), followed by investing, due diligence and capital calls (21%).
Caution is not necessarily a bad thing. Almost half of the funds in our survey (45%) say they wait before introducing a new technology. They want to feel like it is working for others and seek out positive reports from reliable sources.
It is the attitude of another third of those questioned that is more worrying: 23% say they only use new technologies if there is no other choice, while 8% – almost one in 10 – actively avoid the technology unless the regulator has specifically approved or mandated its use.
Investor demand for fund technology is growing
Investors are more and more sophisticated and they increasingly expect more information and better reports from them. Funds that are lagging behind technology usually often struggle to meet this demand. These are the most forward-looking and technology-savvy funds that set the standard for better investment accounting and investor reporting. This, in turn, is fueling greater reporting demand from investors in lagging funds.
The high quality service from major funds creates pressure to invest in technology for the rest of the market. Funds that are behind schedule need to ensure that their infrastructure is strong enough to take advantage of the opportunities. Many do just that. Almost half (47%) say technology investments over the next five years will be in investor relations and reporting.
Regardless of the size of the fund, the objective is the same. It needs a single, golden source of data entering the organization. It requires technology to process and store what’s current. Being able to handle more data means that it may also need to bring in other third-party information – for example relating to ESG – to add to the analysis models. Better insight from this data means a better experience for investors and greater differentiation from competitors.
There is no one-size-fits-all fund technology solution
In such a dynamic and rapidly changing environment, funds must keep pace. This means that existing long-term strategies may no longer be appropriate. It is not only important that the funds strategize to invest in these technological areas, but also that they make the investments in a timely manner.
Different funds must find different answers to their technological needs. Many have made significant investments over time, re-examining their platforms, envisioning a transformation that includes operating international platforms of quality service providers.
Other funds, meanwhile, may have been content with a combination of Excel and Quickbooks so far, but that won’t be enough anymore.
In the short term at least, the big funds are likely to get bigger. Smaller funds will have to innovate to differentiate themselves. They’ll be under pressure to reconsider their processes, and the best solution might be to work with a third-party vendor. Today, technological capability is an ideal way to achieve this.
Download the full report now
Why Intertrust Group?
Intertrust Group provides industry-leading specialist administration services for tailor-made services to businesses, funds, capital markets and private wealth management
With over 4,000 employees in over 30 jurisdictions, we provide the expertise to help our clients thrive
We provide cutting edge technology, comprised of proprietary technologies and leading vendors for a comprehensive offering to private equity fund managers, portfolio companies and banks
We can provide our customers with 90% Automation and Straight-Through Processing (STP), provided in all lines of business