Private asset management is an increasingly important part of asset allocation as investors look for new avenues to generate returns and diversify risk. But they present unique challenges for wealth managers with their illiquid nature, complex valuation methodologies and lack of standardised reporting.
Advanced technology can help wealth managers overcome these challenges and unlock new opportunities in alternative investments, ultimately benefiting both wealth managers and their clients.
Shifting Investor Landscape
Investors are facing continued inflationary pressures, diversification challenges and public markets with low returns, fragile liquidity and a lack of listed growth companies. Increasingly, they’re turning to private markets to boost returns and enhance diversification. They are shifting allocations to a range of alternative investments including private equity, private debt, real estate, infrastructure, venture capital, growth capital and natural resources. These assets can also be readily customised to manage liability matching, access ESG and renewable energy investment themes, and target non-financial goals more broadly, including social impact investing.
As the trend for increased private asset allocations sweeps across the investment landscape, wealth managers are scrambling to expand their offerings in private markets. For wealth management advisors, catering to private asset demand is a crucial way to address the evolving needs of their clients. It also enables them to command typically higher fees and tap into an important source of growth and expansion.
With greater investment allocation to private assets, advisors must enhance their analysis and performance reporting of these asset classes to effectively meet the surge of demand and uncover the true value these investments can offer. Luckily, there are a number of ways advisors can leverage technology for this purpose.
Improved Investment Portfolio Management
Advanced technology can provide wealth managers with enhanced investment portfolio management capabilities for private assets. These include portfolio tracking and monitoring tools that enable wealth managers to effectively manage and analyse asset portfolios.
For example, wealth management advisors can leverage solutions to track and update the valuation of private assets in real-time, allowing for more accurate portfolio valuation and performance reporting. They can deploy comprehensive reporting features that allow them to generate customised reports for their clients and showcase the performance and risk characteristics of their alternative asset investments.
These new tools provide wealth managers with a holistic view of their clients’ private asset management portfolios. This can help enhance their investment recommendations and improve how they communicate performance to clients.
Advanced Data Management and Analysis
Wealth management advisors increasingly recognise the need for advanced technology to efficiently manage and analyse the vast amount of data associated with private assets. The asset class often features complex data sets, across financial statements, legal documents and market data, which need to be accurately collected, organised and analysed.
Wealth management technology solutions can automate these processes, reducing the time and effort required for data management and analysis. For example, artificial intelligence (AI) and machine learning algorithms can automatically extract relevant data from financial documents, standardise the data and store it in a centralised database.
This streamlined data management process allows wealth managers to easily access and analyse data, enabling them to gain insights and make informed investment decisions. It can unlock sophisticated data analytics capabilities, such as risk modelling, scenario analysis and performance attribution. This helps advisors better understand the risk and return characteristics of private asset management and optimise their clients’ portfolios accordingly.
Enhanced Risk Management
With unique liquidity, market and regulatory risk characteristics, private assets often require specialised risk management approaches.
A robust asset management framework for private markets should encompass risk management and analysis, and the associated data requirements, for both top-down and bottom-up approaches. The former approach is most suitable for fund investments and the latter for co-investments and direct investments. Wealth managers can leverage advanced technology to develop superior risk management tools to support these approaches. They can perform risk modelling and simulations to assess the risk profile of their clients’ private asset portfolios, identify potential risk exposures and formulate mitigation solutions. In the case of direct investments, they can identify and analyse the most crucial risks and define risk monitoring indicators to track investment performance during the holding period.
Risk is often perceived to be higher in private markets compared to public markets and is assessed and managed differently. By leveraging technology solutions for risk management, advisors can mitigate risks associated with private assets and protect their clients’ investments as part of a sound, well-informed investment decision-making process.
Next Level Reporting and Transparency
Advanced technology solutions significantly improve the reporting and transparency of private assets. This is often a challenging area for wealth managers due to the lack of standardised reporting in private markets.
Wealth managers can automate and customise reporting features to generate detailed and transparent reports for their clients. Additionally, they can deploy tools for performance attribution, benchmarking and peer group analysis, and compare the performance of private assets against relevant benchmarks and industry peers. This enhanced reporting and transparency can foster trust and confidence between wealth managers and their clients.
Technology Harnesses Private Market Demand
As demand for private asset management continues to surge, wealth managers are racing to address and exploit this trend. Their efforts are crucial if they are to effectively cater for investors’ changing needs and future proof the growth of their own business.
Traditional technology solutions are not sufficient for wealth managers to reap the rewards of private markets and create value for their clients and their own businesses. They must harness advanced technology to better manage, analyse and report on alternative investments. This will enable advisors to deliver the benefits associated with private assets including higher returns, portfolio diversification and resilience throughout recession periods.
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Valuefy is a premier investment technology lab with cutting-edge solutions serving leading financial institutions across the globe. Its Wealth Management Solutions has enabled Wealth Managers globally by providing production-grade investment technology solutions for an uberized customer experience.