Strata Fund Solutions, the leading private equity and venture capital fund administrator, today announced a series of predictions for fund administration and data management in 2020. With the upcoming presidential elections in view, growing competition for investor dollars at an all-time high, and new privacy laws, Strata foresees a year of back office transformation as firms work to achieve efficiency while meeting a broad range of demands.
Strata predicts four major changes in the fund management industry next year:
- Advanced technology and AI will play a much larger role in data management and a smaller (but important role) in fund accounting
- Back office silos will break down to make room for cost management strategies that also drive innovation
- State-by-state compliance requirements will create a push for industry standardization
- 2020 will be a year of transformative fund reporting
“In the year ahead, closed-end funds will race towards efficiency, with a focus on cutting costs, increasing quality, and using every tool available to become smarter than the data at hand,” says Jared Broadbent, co-founder and managing partner at Strata. “With a potential recession still on people’s radars and a presidential election that could result in regulatory changes, the fund management industry will continue to transform over the next 12 months in ways that will affect its trajectory for years to come.”
Advanced technology and AI will drive huge efficiencies in data management
In back office functions where formats are relatively standardized, artificial intelligence will drive significant efficiencies over the next 18 months. Currently, the ratio between AI and data management professionals is roughly 30% to 70%. Strata expects this ratio to reverse over the next few years.
In more complex back office functions such as fund administration, Strata believes AI adoption will be significantly slower. This is especially true in private equity where, according to Broadbent, complex legal structures, calculations of fees and distribution waterfalls, and reporting requirements vary significantly. “The structure, reporting and distribution requirements of each PE fund are unique – somewhat like a fingerprint,” he notes. For PE funds, technology will play a critical role in data aggregation and reporting, but expert systems will never replace the crucial judgment and decision making of expert professionals.
A drive for collaboration and cost management will break down back office barriers
Driven by the sheer operational cost of maintaining an in-house team and the need to meet increasing demands from investors and fund managers, the back office will transform to become more flexible, collaborative and dynamic than ever before. Strategies like outsourcing and/or lift outs will offer alternative options for GPs looking to cut costs while retaining valuable institutional knowledge, industry best practices and access to advanced technology.
Strata believes that in the event of a recession or fee-constricting environment, GPs would look for ways to keep margins and profits up by rethinking their operations and shifts in investor expectations would only generate more of a desire for increased oversight.
State-by-state compliance requirements will drive solutions for cohesive regulation
The California Consumer Privacy Act, taking effect on January 1, 2020, is one of many US privacy regulations that will transform fund management for years to come. Other states are now debating similar bills. “Until the US comes up with a cohesive privacy law, funds must grapple with the expensive challenge of managing compliance on a state-by-state level,” says Broadbent.
Over the next few years, expect the industry to lay the groundwork for more consistent and cohesive regulation across state lines.
2020: the year of transformative fund reporting
Competition for investor dollars is at an all-time high – as is public scrutiny of the PE and VC sectors. As all stakeholders demand greater access to real-time, transparent data, look for major changes in fund reporting over the next 12 months. Among the likely developments: more dynamic/interactive data, mobile access and real-time reporting capabilities. “Fund managers want more data on their portfolios and KPIs, and investors want more transparency as well as data on their fund performance and exposure,” notes Broadbent. “Expect 2020 to be a transformative year for fund reporting and data management.”
About Strata Fund Solutions
Strata Fund Solutions is a leading provider of mission-critical middle- and back-office services to private equity funds, venture capital funds, other asset managers and asset allocators. Strata’s service offering includes traditional fund administration, shadow fund administration and data maintenance services. With nearly $100 billion of assets under administration, Strata has a long track record of supporting complex clients and delivering on high-value engagements. Founded in 2008 to fill an underserved need for high-quality fund services, Strata has established itself as a leading innovator in the alternative investment sector over the last decade. For more information, please visit www.stratafs.com.