Industry executives and experts share their predictions for 2022.  Read them in this 14th annual VMblog.com series exclusive.

Fintech - Predictions for Alternative Investment Organizations

By Michael Maguire, Ledgex

Fintech is growing - massively. According to a recent report, the volume of product users has increased 337% since January 2020. Funding in Q3'21 has also risen nearly 150% year-over-year, almost double all of 2020 and with a quarter remaining. Technology is driving change, fortifying capabilities and introducing greater efficiency, all of which are especially needed by foundations, endowments and family offices to compete, survive and hopefully thrive.

Still, there's lots of hurdles to cross for these smaller alternative investment organizations, and the year ahead will be a pivotal one in shaping the industry. That said, the following are some of my thoughts on what we'll see happening in fintech as it relates to the space in 2022.

Data Quality Issues Rise

For many foundations, endowments and family offices, the ongoing battle over data quality will be an even bigger issue in the year ahead. Further, with workforces dispersed due to ongoing concerns over COVID, sharing information has become even more difficult.

Already, allocators lack confidence in the quality of their diverse portfolio investment streams. Most don't have the ability to review and manage data across multiple views. With more employees offsite - pulling information down from the web and other sources - data inputs are growing. This increase in disparate sources raises the likelihood of lower data quality. That makes it critical to validate and measure the information, if not through technology, then by adding personnel - which will raise overhead and slow processes.

Quality Control and Confidence

Advancements are emerging to address data quality, specifically to make it better and more measurable. Multi-asset class portfolio platforms will grow in sophistication and gain wider acceptance throughout 2022. This will provide allocators front to back management and the ability to fully leverage data for more accurate reporting on positions and performance.

Some platforms already combine accounting and investment books of records in a one solution to enhance control and streamline workflows. Teams only need to capture and reconcile data once, some even publish downstream to support accuracy and offer deeper analytics. Advanced algorithms are also being incorporated to assign confidence levels to underlying data quality. This puts portfolio details in a new light, supporting agility and decision-making, while eliminate time spent gathering and proving data quality.

This will provide a competitive advantage that'll distinguish savvier alternative investment organizations.

Market Volatility and Suite Success

Concerns will continue about market volatility throughout 2022. Political tensions remain high, COVID hasn't released its hold, natural disasters still occur, all of which sets the stage for unpredictability. This makes portfolio management more challenging, especially on the private equity side where getting balances right is imperative.

With this volatility, tools for managing liquidity, pacing and modelling will be needed to stay ahead of trends, keep portfolios in line and make the right decisions. Separate ones for private equity and public investing will give way to single solutions with comprehensive suites. More firms will also seek solutions that pull all end points together, providing a single pain of glass to view what's happening across a portfolio, giving alternative investment firms the agility needed to respond to sudden market shifts. 

Modernizing Tech Stacks

Expect more enhanced workflow tools bolstered by newer tech, ideally bundled in platforms. For instance, there's talk about optical character recognition (OCR) being used to cull difficult data sources. Overall, there will be much more focus on leveraging modern tech stacks with artificial intelligence (AI) and machine learning (AI/ML) to drive automation and cost-efficiency. This will free investment pros from rote work to focus on adding value and increasing profitability.

AI/ML will help firms mitigate talent shortages, too. A job market heavily favors candidates right now and even long-term employees are jumping ship. The relief from AI/ML can provide the flexibility to reallocate assets and continue productively. And with systemized knowledge, capabilities remain even after senior personnel leave. In the same regard, firm needs will continue to move away from using spreadsheets to avoid valuable siloed information from being lost.

Still, alternative investment firms need to pick up the pace in learning how to best apply these technologies. This year, delaying an AI/ML strategy could put an organizations at risk of being left behind...for good.

Vendor Consolidation and Commitment

Consolidation amongst technology vendors in the space has been growing and will increase. When smaller vendors are acquired by larger ones, innovation is stifled and cookie cutter services proliferate. As a result, pure play providers committed to the technology and market will grow in importance.

Further, vendors that can't provide AI/ML guidance, or discuss their own company's strategy, will lose the trust of customers. Use of these technologies is rocketing. The vendors that are here to stay and committed to the space will increasingly become apparent and form strong relationships with the alternative investing community.

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ABOUT THE AUTHOR

Michael Maguire is chief revenue officer for Ledgex, a multi-asset class portfolio accounting solution built by investment office professionals. The company enables investment firms to confidently and successfully manage complex asset portfolios with game-changing data accuracy, transparency and timeliness. For more information, please visit www.ledgex.com.