Director, Fund Services, Hong Kong, Intertrust Group
Asian private equity fund management sees the promise in automation but is yet to fully adopt it
What does distributed ledger technology (DLT) promise for Asian private equity? For now, it’s difficult to say. There’s plenty of talk but little action.
Clearly there is potential in terms of efficiency, transparency and improving investor confidence in data reliability – but it is still only potential.
Nobody in private equity expects that to change soon. At present DLT and other promising technologies, such as automation and machine learning, are simply bumping up against the complex realities of private equity fund management – and the sector’s reluctance to invest beyond what is absolutely necessary.
Manual processes persist
Automation is making great strides in other asset classes. But in Asia, DLT and other new technologies have still not fully convinced many private equity managers that their benefits outweigh the implementation costs.
This is not down to some technophobe mentality. In Hong Kong and China, everyone pays using a smartphone app. People are happy to adopt the latest technology. By contrast, many private equity funds are still monitored on spreadsheets and manually managed .
Why are these digital natives not embracing technology in their work lives?
Simply because, in the private equity space, the case for many of these technologies has yet to be convincingly made.
The barrier is cost and complexity
Cost lies at the heart of this. Private equity is complicated, and no two funds are the same. They are based on “deals” rather than “trades” and could also be in the form of side letter arrangements. All of this creates the need for considerable customisation.
So it’s very difficult to import a system that works well for all scenarios – especially when those scenarios might change.
Generic fund technology requires considerable fine-tuning for private equity, and that complexity adds cost – a real challenge in Asia, where the market is young and many firms are relatively small by global standards.
If you have USD1bn in assets under management (AUM), you can create bespoke technology and spread the cost among a large cohort of investors.
When you have only USD50m in AUM, you don’t have that option.
While there is growing investor demand for more data and reporting in Asia private equity, ultimately investors put their money into private equity to maximise returns.
While they will always appreciate more information, fund managers must find the optimal balance between giving investors what they want and keeping costs to a minimum. At present, some of the most talked-about new technologies fall on the wrong side of that line.
Ownership of data
Will that change? In some areas, the case for better technology is being made.
For example, investors want online portals that let them monitor their portfolios anytime and anywhere. This desire for control – and the ability to self-serve – is being imported from the consumer space.
For fund managers, an efficient, user-friendly investor portal is a win-win. Investors want information across the fund cycle, alongside regular updates on costs and fees. By giving them ownership of their own data, funds escape some of the burden of basic reporting.
At Intertrust Group, the most frequently asked questions from private equity fund managers are about our portal. It is now generally accepted that digital platforms bring considerable benefits for investors and managers alike.
Other questions are often around regulatory compliance. Smaller funds in particular tend to be less confident about handling this kind of data.
The information has to be collected, validated, filed and protected using linked digital systems. This is a complex and time-consuming task, with significant penalties for non-compliance.
Funds need to invest in the relevant technology and can choose to implement and maintain it in house or outsource to a trusted third party.
Either way, even smaller funds in Asia are accepting the need for better technology in these areas and understanding the efficiency it can bring.
Similarly, they understand that automation, machine learning and DLT will all eventually play a role in private equity. But private equity funds see no advantage in being early adopters. They will wait till the case has been more convincingly made, and costs are low enough for painless adoption.
Why Intertrust Group?
- As a strategic partner, we offer a full-spectrum service tailored to meet all back-office needs throughout the life of a private capital fund. This is against a background of ever-increasing reporting demands.
- Our proprietary innovative technologies combine with global knowledge and experience to deliver added-value services catering for all asset classes, while increasing manager visibility of portfolios on behalf of a fund’s investors.
- Our expert teams harness tools and cutting-edge technologies to eliminate costly errors in handling fund administration and corporate actions, investor relations and portfolio management.
- Intertrust Group is a publicly listed company with 70 years’ experience providing world-class trust and corporate services to clients around the world.
Insights | Private Capital & Hedge Fund Services
Private equity data: a differentiator for progressive funds
23 June 2022
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