Alternative Asset Managers Feel the Heat of Technological Change
A rapidly changing technological landscape brings significant challenges for both 'traditional' and 'alternative' asset managers. Investor interest in 'alternatives' as separate, non-correlated asset classes has grown exponentially since the global financial crisis (GFC). A recent survey notes that alternative asset managers view emerging technologies as one of the biggest drivers of growth in the next five years. However, in common with many industries, participants see obstacles, particularly those associated with cost and implementation.
The papers and surveys selected outline both the risks and opportunities that technological change presents to the alternative asset sector, with examples taken from across the alternative asset industry, including private equity, hedge funds and real estate. PropTech features prominently in commentaries, partly because its adoption and implementation in commercial real estate’s evolution and transformation has much higher investor visibility (in terms of ESG impact and 'bottom-line' cost benefits, e.g. reducing energy usage), than do the benefits of proprietary data interrogation utilised by PE or hedge funds.
James Redgrave, State Street's Head of EMEA Insights, explores the results of a joint survey of over 200 alternative asset managers undertaken with Mercatus. An overview of the implications for business models, strategies and relationships with investors is presented. Although emerging technologies feature as a key growth driver for alternative asset managers, integration risks and budget are two significant obstacles to overcome.
This CFA Institute report identifies that artificial intelligence and big data applications in investments can potentially be used to significant effect. Surprisingly, the report finds relatively few investment professionals utilising the benefits in the investment process. Firms appear reluctant to fully embrace the power of artificial intelligence (AI) and big data due to high upfront costs, a small talent pool of data professionals, and technology risks with the integration of legacy systems.
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AGF examines the growing attraction of alternative assets since the global financial crisis (GFC) of 2008 when cross-correlations across 'traditional' asset classes turned out to be much higher than was assumed.
ALTERNATIVE INDUSTRY INSIGHTS: PRIVATE EQUITY & HEDGE FUNDS
EY's in-depth Survey of the Alternatives Industry finds that technology has already had a critical influence across the alternatives sector, reinventing how some strategies are deployed and changing distribution models. EY devote a section of their report analysing how investment in cutting edge data and technology by alternative managers will be seen as a baseline expectation by investors.
Preqin's report takes a 5-year view and examines what the alternative assets industry will look like in 2023. A section is devoted to changing technology and how it will affect not only alternative asset managers directly, but potentially, also portfolio companies as well. New technology should enable asset managers to become more operationally efficient, helping managers to reduce costs and make better informed, timelier decisions.
Bain & Company’s substantial 2019 Global Private Equity Report offers an invaluable insight into the global private equity industry. A section of the report is devoted to Advanced Analytics, which, when deployed correctly, can provide proprietary insights that offer an edge.
This joint survey report from KPMG/CREATE-Research examines findings from 125 alternative managers questioned about the impact of digitisation upon the alternative asset space, with particular emphasis placed upon two key sectors, hedge funds and private equity. The authors suggest that 'private equity firms must digitally transform to compete' as the competitive landscape intensifies. Surprisingly, many hedge funds are at still at the nascent stages of 'awareness raising' about what will be required on the 'digital journey'.
In this insightful document from McKinsey & Company, they offer a review of private markets investing. Included is a section on 'firms of the future', in which the processes of digitising various internal and portfolio management processes are explored
As alternative asset investments have become ubiquitous among institutional investors in recent years, their relative over-reliance on manual processing is a cost and resource burden. SimCorp suggests that a cross-asset approach, including an Investment Book of Record (IBOR) and standardised workflow is a potential back-office solution for the successful management of alternative investments.
TECHNOLOGY AND REAL ESTATE
This CMS report presents the results of a recent roundtable discussion in which leading figures from across the real estate industry discussed the increasing use of smart technology in commercial real estate. The conclusion is that smart technology offers enormous potential for developers, occupiers and service manager providers alike, but careful collaboration is required for its full capabilities to be realised.
Nuveen Real Estate’s Head of Sustainability, Abigail Dean, and Jack Sibley, Technology and Innovation Strategist, discuss with Helena Olin of Swedish national pension fund AP2, the potential benefits that technology can bring to commercial real estate investing. From improving efficiencies in the construction process to more energy-efficient properties, ESG friendly or ‘sustainable’ buildings appear to be emerging as potentially better investments, with higher rents, lower vacancies and lower operating costs.
Deloitte's outlook survey on the commercial real estate market focuses almost entirely on how using digital and analytics will help to revolutionise the tenant experience. As an example of how technology has the potential to disrupt 'traditonal' industries, institutional investors committed almost $1bn in funding during Q1 2019 to start-ups and PE investments in the 'smart building' or 'proptech' space. A view is emerging that real estate is becoming more of a service rather than just a physical location. A fundamental rethink by all participants in the CRE space, including companies, investors and tenants may be necessary.
KPMG's annual 'deep dive' into the adoption of digital technology by the real estate industry.