As asset owners have increased their allocations to alternative assets, many have been challenged in aggregating an accurate picture of their portfolios. New technology solutions can change that experience, Raphaelle Granger, Lead Product Manager - Alternative Asset Services, Northern Trust, and Vincent Molino, Head of Operational Risk Management Solutions, Northern Trust, believe.
Alternative asset investing is a key focus for institutional investors, driven by their desire to diversify their portfolios, achieve a premium on investment returns, and manage risk. In what has traditionally been a more operationally manual asset class, new technologies are moving the needle in the effort to make alternative assets easier to manage and administer for institutional investors of all types and sizes.
This migration to alternative portfolio allocations continues to gain momentum. One survey of global asset owners found the average portfolio now allocates 26% of assets to alternative investment strategies, up from 24% in 2019. Additionally, 40% plan to increase their allocations to alternatives assets over the next three to five years. (Pensions & Investments, “More asset owners worldwide turning to alternatives – CoreData survey”, September 1 2020.)
With a greater commitment to alternative investment strategies comes an elevated process for servicing these complex assets, buoyed by the need to understand the performance, risk and liquidity of such holdings. However, emerging technologies are evolving at a fast pace which can improve the asset servicing experience, facilitating a revolution in alternative asset digitization.
Servicing alternative assets today
Asset owners can face challenges when there is a need to incorporate a detailed and accurate view of alternative investments into their portfolios. With little standardization in alternative markets, a variety of reporting formats used by portfolio managers include key investment data accessed across a number of files, usually transmitted over email or through portals. Asset owners and asset service providers are often left to manually piece together a view of an alternative investment portfolio’s composition and performance.
Due to a general lack of readily available, plug-and-play technology, automation of such records is not typically available to most asset owners. As a result, resources are diverted in the form of many hours of manual work to accurately compile information of alternative investments, where such resources could be better utilized through maximizing time with higher-value strategic tasks.
However, emerging technology applications such as artificial intelligence and blockchain are transforming the world of alternative asset servicing by streamlining processes in both asset owner and asset servicer operations. Capabilities of these technologies range from improved investment research management, to enhanced administrative workflows related to accounting, performance reporting, liquidity analysis and risk oversight.