Value drivers in fund technology

By Nandakishore Divakarla, Head of Innovation at Intertrust Group

Not everyone has given in to the onward march of technology and automation, as our recent research with private capital fund managers found. A third (34%) of those we questioned said that most or all of their key fund administration processes are still handled manually. With the benefits of automation widely established, what is preventing its widespread adoption?

In private capital fund administration, repetitive processes lend themselves to automation. The larger the fund, the more reliant it will be on automation due to the greater volumes of data and higher numbers of investors.

The clear argument for automation in private equity funds is that it reduces costs, speeds up processes, and makes it easier to manage increasingly complex operations. Almost two-thirds of funds we questioned last year said automation had had a significant effect on fund administration over the last five years.  Moreover, 68% agreed that over the next five years, increased automation and other new technologies would be vital to giving their fund a competitive edge.

There is clear evidence of the impact of innovation, with two technologies – robotic process automation (RPA) and machine learning (ML) – contributing significantly to making fund administration much more efficient.

If, for example, a fund has a capital call of a certain amount, the use of RPA means a calculation is done and allocated to all investors and an email is initiated with the information and sent to those investors. ML or AI works in the background to analyse human interactions and identify trends. Reconciliation, for instance, stores all the actions to be carried out by the human and then automatically prioritises elements to speed the process up. At Intertrust Group, we have seen AI reduce reconciliation times from over five hours, to under 30 minutes.

Technology barriers

Given the clear evidence of real-world success, who wouldn’t want to automate? Whilst limiting factors including market conditions and regulatory issues do pose challenges, the biggest barrier, for nearly one in four funds we surveyed, is cost.

There is clearly work to be done in understanding and quantifying the benefits of new technology, because the ability to automate some of the more time-consuming tasks frees staff up for more rewarding and profitable work. Enhancing data management capabilities helps funds run their operations more effectively and make smarter decisions.

Adopting new technology is an important strategic decision. Investing too early means incurring costs before the true benefits are attainable. However, investing too late risks being left behind the competition. Timing is important, which is perhaps why many funds seek third-party expertise to help with their technology decisions.

Fund managers and administrators are not experts in innovative technology, nor would they expect to be. Lab 52 is Intertrust Group’s innovation lab, which tests out how new tech concepts can drive efficiency and reduce costs for clients. Technology is at the core of our overall business and strategy and its areas of focus include big data, machine learning, blockchain and RPA. They are all key technologies for the industry.

Most funds, regardless of size or location, use third-party administrators (TPAs) to run at least part of their business. Technology has sped up the entire deal-making process and the onward march of automation is unstoppable which is driving business for TPAs.

Technological innovation is a challenge, but it is one that, when met, can make it easier to tackle issues affecting other parts of the business; solving troublesome problems and making everyday business smoother.

The real advantage will come from transformative change of the kind that makes possible new products and services and new ways of working. The funds that can seize that opportunity, will be able to position themselves as leaders in their sector.