Key Takeaways
- • Sia Partners identifies rapid growth of the alternative investments industry and the entry of new funds as the source of a widespread lack of standardization across investment platforms.
- • Manual processes, including customized spreadsheets, email, phone, mail and fax exchanges, and the "Four-Eyed Review," slow subscriptions and redemptions to a multi-day or multi-week process and raise operational costs.
- • Firms face data governance challenges from non-uniform data, manual collection, multiple operational systems and tighter regulation, with key operational knowledge often held by individual employees.
- • Per a 2018 Preqin survey cited by Sia Partners, only 9% of alternative fund managers used AI or machine learning, 26% planned to within five years, and 57% had no plans to adopt them.
Summary
Sia Partners argues that the rapid expansion of the alternative investments industry, and the entry of new funds, has left investment platforms without standardized workflows. The firm lists several resulting challenges: managing product support and expansion as the number of products with varying structures and registrations grows; differing workflows among fund administrators for similar alternative investment products; a lack of data uniformity for receiving and processing valuation, price and fee updates from external sources; and operational knowledge that resides with individual employees rather than in documented systems. Sia Partners warns that firms with unorganized workflows risk costly errors and strain on operational and technological support, and that fund-specific workflows raise onboarding and processing costs.
Manual processing is identified as a further constraint. According to the article, the absence of automated systems exposes firms to loss of information exchanged through customized spreadsheets, email, phone, mail and fax, and to duplicated effort, including the manual "Four-Eyed Review" process. Subscriptions and redemptions can stretch into multi-day or multi-week affairs involving multiple document reviews and handoffs. The rekeying of information to consolidate statements and prepare reports increases operational cost and the potential for error, and Sia Partners notes that requiring two full-time employees to review or approve data before it is shared externally is costly.
Sia Partners also points to data governance as a growing problem. Lack of data standardization, manual collection, multiple operational systems and tighter regulation create complex reconciliation requirements across reporting systems. The article notes that operations can become non-functional if key employees leave. Meanwhile, investors are demanding greater transparency, risk management, compliance, internal controls, performance attribution and regulatory and investor reporting, which firms struggle to deliver without standard, automated processes. Sia Partners concludes that such processes are necessary for firms to scale. The article cites a 2018 Preqin survey showing that only 9% of alternative fund managers used AI or machine learning at that time, 26% planned to within five years and 57% had no plans to do so.
Manual processing is identified as a further constraint. According to the article, the absence of automated systems exposes firms to loss of information exchanged through customized spreadsheets, email, phone, mail and fax, and to duplicated effort, including the manual "Four-Eyed Review" process. Subscriptions and redemptions can stretch into multi-day or multi-week affairs involving multiple document reviews and handoffs. The rekeying of information to consolidate statements and prepare reports increases operational cost and the potential for error, and Sia Partners notes that requiring two full-time employees to review or approve data before it is shared externally is costly.
Sia Partners also points to data governance as a growing problem. Lack of data standardization, manual collection, multiple operational systems and tighter regulation create complex reconciliation requirements across reporting systems. The article notes that operations can become non-functional if key employees leave. Meanwhile, investors are demanding greater transparency, risk management, compliance, internal controls, performance attribution and regulatory and investor reporting, which firms struggle to deliver without standard, automated processes. Sia Partners concludes that such processes are necessary for firms to scale. The article cites a 2018 Preqin survey showing that only 9% of alternative fund managers used AI or machine learning at that time, 26% planned to within five years and 57% had no plans to do so.
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