Demand for alternatives puts pressure on asset managers: State Street

To avoid data inefficiency, alternative managers must take a tech-led approach to meet the evolving needs of their clients, State Street says.

The landscape of alternative investments is evolving, with increasing interest in digital assets and impact investing, alternative asset managers have to turn to technology in order to meet the growing needs of institutional investors, according to new research by State Street Corp.

With increasing pressures and demands on returns and reporting, State Street found that 57% of the alternative asset managers interviewed said their investment operations are built to scale to deal with increasing volume and complexity, yet 70% believe they will need to increase the amount they invest in data storage, management and analysis to keep up with demand.

Survey responses come from more than 200 alternative investment professions including private equity, hedge funds and real estate conducted between August and September 2020.

Despite market instability, shifting business models and pressure on asset valuations, the majority (82%) of alternative managers surveyed believe their organization has been effective at responding to increasing investor demand for transparency and additional types of data.

Yet, less than half (48%) said they have a good level of efficiency and effectiveness in their business’ technology systems, which underpins their use and management of data, according to the survey.

To avoid falling behind competitors due to data inefficiency, alternative fund managers must take a strong technology-led approach to meet the evolving needs of their clients and that will set themselves apart from competitors, said Vincent Georgel-O’Reilly, head of the alternatives segment, Europe, Middle East and Africa at State Street.

“As a result, we expect outsourcing to gain momentum as firms will turn to external service providers to make the best use of their data,” he said.

When it comes to how alternative fund managers feel current increased uncertainty and risk has impacted confidence in their sector; 44% believe it has increased, 27% think it has fallen and the remainder (29%) feel there has been no change.

The rise in environmental, social and corporate governance investing has alternative managers at the early stages of planning for ESG implementation, with investors focusing on transparency and detailed reporting on their actions in this area.

According to the survey, more than three quarters (76%) of alternative managers expect analyzing and reporting ESG data to be important for their firm’s future success, with 21% saying it will be extremely important.

When it comes to individual alternative asset classes, three out of four believe ESG will be of increased importance to private equity followed by infrastructure (68%), hedge funds (61%) and private debt (58%).

The survey dropped just four days after State Street’s June 10 announcement that it created a division to cater to the popular alternative asset cryptocurrency. The division, State Street Digital, will focus on digital finance, expanding the company’s current digital capabilities to include crypto, central bank digital currency, blockchain and tokenization.

State Street has also announced a series of strategic partnerships to bolster its alternatives offering for clients, including partnerships with iCapital Network and Virtus to provide data management platforms that help clients accelerate launches, establish scaled access to wealth management channels, automate administrative processes and monitor performance.