Why systems need a reboot

As firms begin to adopt more technology in their investment processes, a lack of integration could hinder LPs rather than help. Rebecca Szkutak reports

Technology across private credit is advancing at different rates. As firms try to find the best systems for their needs, the different platforms and data formats are starting to pile up for limited partners.

Arguably the biggest problem is that the scale of technological advancement in the asset class is unbalanced.

Some firms have tapped into extensive databases, such as Hamilton Lane, whose platform has data on over 4,100 private funds. Mercury Capital Advisors’ platform Mercury iFunds, on the other hand, allows users to invest in curated, researched vehicles. Others, like The Riverside Company, use different software across different departments.

GPs look to technology to improve efficiency across their respective firms, but that efficiency isn’t always particularly useful for LPs.

A pension investment officer says it can be difficult to keep everything organised across the different mediums that firms are using.

“It’s tough,” the source says. “I think there was a wave of managers wanting to push you toward their platform. As an LP, that was one of the valuable points of [LP-GP communication platforms]: one login for many relationships.”

Lorelei Graye, a former reporting officer for the South Carolina Retirement System Investment Commission, says that when she began her role, she was exasperated by all the different ways data were received.

“Part of the LP frustration is this delivery of non-structured and inconsistent formats across different private investments within their portfolios,” she says. “LPs have to spend valuable resources to transform and aggregate the typical PDF sources into standardised data for their technology platforms and further analysis.”

Graye, who is the founder of consulting firm Leodoran Financial, leads the industry in its efforts to eliminate the data differences that coming with reporting across various platforms.

She hopes with the launch of the independent Adopting Data Standards Initiative – a working group launched by private market participants to achieve consensus  – we will soon see a data standard that is technologically agnostic.


The market now

Some firms like Hamilton Lane use elaborate portal platforms to help with communication and data sharing within its firm and investor base. Dashboards in Hamilton Lane’s system allow the firm to see what their LPs are looking at and what data they find most important.

“To us, the most important part of a technology solution is that it is fully transparent, accurate and fully customisable,” Drew Schardt, a managing director on the co-investment team, says. “No two clients will want to use that data in the same way. The tool and the infrastructure need to allow that customisation.”

Riverside falls somewhere in the middle. The firm currently uses an SaaS-based platform for CRM and pipeline management, as well as a proprietary platform for portfolio management.

“It becomes a bit of a puzzle,” Eric Feldman, chief information officer at Riverside, says. “How do you get all the pieces to play together nicely in the playground and how do you build the integration? You have a tapestry of different systems that don’t necessarily tie together.”

Placement agent Mercury Capital Advisors looks to showcase its best options through its online portal. Mercury iFunds, launched in early 2018, truncates the investment process as the platform gives its users access to a wide array of options across 16 different categories, including distressed debt and emerging markets.

“That is an opportunity for registered investment advisors to invest in some of the funds we are raising and opportunities we are involved in,” Alan Pardee, managing director and co-founder at Mercury Capital Advisors, says.

The above are only three examples among many firms; there are as many different versions of GP-LP communications as there are asset managers. All of this can be a hassle for LPs, notes one person at an advisory group.

“The thing that I hear is that ‘I have to keep track of so many damn passwords!’ How you have to keep track of your login credentials is inefficient. The job of monitoring a portfolio is difficult,” the source says.


The future market

British Business Investments is a commercial subsidiary of the British Business Bank, which initially used technology to source applications for funding online, often through virtual data rooms set up by GPs.

The bank created a platform for GPs to ensure it gets the data and information it needs in a format that flows with its in-house technology, according to Peter Garnham, managing director of investments at BBI.

Garnham says that after receiving different information from GPs and managers, they decided to try to standardise these interactions.

“What we’ve been trying to do is work with GPs and managers to help them to help us,” Garnham says. “It’s almost a partnership situation. Both sides use technology to mutual advantage.”

Solovis looks to provide a similar service for LPs, but on a third-party platform, to allow investors to use a standardised transparent system across their investments.

The Dallas-based start-up, founded in 2013, allows LPs to keep track of their relationships and data on a dashboard, according to chief analytics officer Michael Siminoff.

He joined Solovis when it merged with his company Madrone in late 2017. Madrone provided data organisation and analytics to help GPs seek out potential sources of alpha. When the two combined, Madrone brought its analytics as an additional service to Solovis’s users.

Solovis’s LP base is made up of 50 percent institutional investors, 30 percent single family offices and 20 percent multi-family offices/outsourced chief investment officers.

GPs can submit data to Solovis, which will run free analytics on it. From there, they give LPs access to certain data sets. GPs then get to customise what appears on LPs’ dashboard.  “When we see some of the custom portals and the ways the managers like to push data to LPs, I think it’s very manager-driven,” the pension investment officer says. “I think if we had our opinion about how some of that looked, or what would be most efficient, it might be different.”

Customisation is key as many LPs are looking into different data based on their individual investment criteria.

“A platform that can integrate data from any source, can normalise it, can allow people to retain their customised lens of how they look at their own pools of capital,” Siminoff says. “This didn’t exist in the marketplace.”

As firms become more technologically advanced, transparency and navigation for LPs should be at the forefront of conversations.

“It’s about more than just having the information. The next evolution will see firms really committing to and investing in their technology infrastructure,” Schardt says. “If you don’t have a technology solution for your investments, you are going to lose out to people who do.”