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Role of technology in Alternative Investment Funds (AIFs)

A relative comparison of the AIF industry with other areas of financial services with respect to business intelligence codification using technology would clearly show that it is still lagging. Every AIF (be it PE, VC, FoF), depending on its size and industry focus, has unique investment, monitoring and divestment strategies and there are complexities embedded in core business functions due to this uniqueness. Many would say that the business process codification in an AIF scenario cannot be achieved beyond a certain point, which is in part due to the ad hoc nature of processes and the uniqueness of each deal.

However, the potential to leverage technology to manage the fund is very high indeed. Optimum leverage of technology can help a fund to reach a higher level of operational efficiency, greater compliance, and adherence to new regulations, to support and handle more scrutiny and enquiries from investors and to support a constantly evolving investment strategy. For operations to run smoothly these core functions need to be well augmented with technology which permits the investment and fund managers to concentrate on the firm’s core activities, minimizes administrative costs and ensures data integrity and accuracy.

Over the last few years, technology solutions focused on AIF industry have really evolved and thus adoption, even though relatively slow, has picked up as well. Work-from-home situation over last 18 months has strongly emphasized and accelerated the move from MS Excel to more suitable technology solutions (either SaaS or on-premises). For smaller and mid-sized funds, technology solutions are available that can automate most of the front-office and back-office operations be it – CRM, Deal-flow management, maintaining key metrics of portfolio companies, accurate plus cost and time-efficient capital call, distribution letters and quarterly reports.

AIFs are leveraging new technology and reducing costs by using technology solutions not only for running their operations but also for their portfolio companies. In fact, talking about bigger funds, a few Fund of funds (FoF) are effectively using SaaS solutions to create an ecosystem where the FoF, their investment into other funds (AIFs), and AIF’s further investment into their respective portfolio companies/start-ups are managed on a single consolidated platform – thereby having a single source of truth for every stakeholder.

As funds want to migrate to new systems in stages these SaaS solutions are extremely modular in that firms can buy (license) the specific services that they need, such as: CRM; fundraising; deal management; fund accounting; fund management; reporting; analytics; investor portal; and portfolio management. Along with being modular, in any such solution its critical to have features like – Mobility (being available on mobiles and tablets), Customized Reports and Workflows – as the fund managers want to have control on what information is provided to stakeholders and in which format. Providers of these solutions claim them to be very intuitive, easy to use and require minimal training for fund’s internal teams to use.

Many of the leading technology companies have at one time in their history been funded by private equity and venture capital firms, underscoring the fact that AIFs are aware of the strategic importance of technology as a driver of business growth and the extent to which technology can transform business. Yet ironically many of them have not been keen investors in technology solutions to develop their own internal processes. In their quest for success, many firms have instead continued to rely on human intellect and effort with minimum support from technology. Concern around security of their data could be one of the reasons, however with new age technology solutions, AIFs are recognizing the importance of investing in suitable technology and road ahead definitely seems to be far more technology enabled!

Authored by : Mr. Ankur Agarwal | Co-Founder & CTO, PE Front Office

Published in : India Infoline