This article is sponsored by Alter Domus.
Real estate businesses, like those in other sectors, know that their performance will increasingly depend on their ability to gather and analyze data. But few have yet mastered the processes, and identified the tools, that will allow them to do so in a cost-effective manner.
A common pitfall is to begin with the assumption that the answer is solely a matter of buying or building technology platforms, observes Gus Harris, head of data and analytics at fund administrator Alter Domus. Instead, he argues, technology should be viewed as an enabler for the smooth flow of data from its source to the decision-makers that utilize it, a process that can be facilitated by a trusted back-office provider. Technology is definitely part of the solution, but so are practical and knowledgeable people.
What are the most pressing challenges for global investment managers’ and investors’ back and middle offices?
The market is expanding. As portfolios grow, managing those portfolios becomes more complicated. Allocating to a wider variety of alternative investment strategies; the scale in AUM that brings; and the intricacies of managing such assets internationally for a diversified client base that demands ever-more nuanced risk-return profiles from their investments together increase cost and complexity.
Some of the data flowing back to investors from their portfolios may have been processed manually in the past (or not processed at all, unfortunately), but those solutions are just not scalable today. Solutions that may have worked when asset managers had $1 billion under management in one or two vehicles with a few investors are no longer effective when managers manage $30 billion or $50 billion-plus in dozens of vehicles with a growing web of sophisticated investors around the world.
Meanwhile, technology has matured significantly. The ability to automate, and to analyze data more efficiently has been greatly facilitated over the past 10 years, and now it is growing exponentially with the introduction of AI and other cutting-edge technologies.
If managers fail to harness that capability, it will affect their ability to grow at scale, because the cost of doing so becomes exorbitant without the right technology. In addition, if their operations are relatively too expensive compared to their peers, investors will turn to more efficient managers that can provide them with more and better-quality timely information at a lower cost.
Asset managers that can charge lower fees and provide better data because they have smartly automated their operations will win out. We have reached the point where effectively managing data and the related decision-making analytics is almost an existential issue for managers that want to grow scale.
What are the key considerations for managers seeking to take control of their data?
The first is accuracy and completeness. Data from different sources and contexts must be normalized so that it is directly comparable. It must also be gathered in a timely manner. Today, a lot of relevant data is not even collected. The second challenge is scale. Whatever data solution a manager has in place needs to be able to scale vertically, so that they can add more data and analytic and reporting capabilities in a cost-efficient and timely way.
Data platforms also may need to scale horizontally, as the manager invests in new types of instruments or extensions of current investments. One of the current features of the market is how many new flavors of investment solution are being added all the time.
A third consideration is efficiency and cost-effectiveness. We hear from our clients that software providers will sometimes show them a solution that initially looks good, but when they start to use it they realize – unfortunately too late – that the total cost of ownership is too high. Technology-only solutions are often too costly to get the accurate, complete, normalized data that managers and investors need. Agility is also vital – the ability to build around the data solution.
Data platforms cannot be designed or built in isolation. To benefit from data in decision-making, market participants need to think about their data strategy in the context of their overall investment requirements. How they will use their data should be incorporated into their corporate identity and asset management processes to make them more efficient and consistent with investor expectations. In a nutshell, proper planning and design are essential so that managers assess and align the ecosystem that is going to support and live around the data solution.
Finally, it must be usable. Data solutions should be designed to help investors to make decisions when they are considering what to buy or sell, without needing to be technologically-savvy. Using data better is not a technology problem, it is a decision-making problem. Technology is critical to solving it, but getting the design of that technology right, and building a supporting ecosystem around it, requires a combination of knowledgeable people, properly supported and guided with the right technology.
To what extent has the real estate industry embraced the digitization of private markets fund administration?
The good news is the industry sees the need. The market is sold on the idea that we must modernize and move to next generation capabilities to grow the alternative marketplace. Different providers, investors, and managers are at different stages of the maturation process. There are not many sophisticated investors and managers out there who believe that the status quo as it was a couple of years ago is sufficient. Some have moved faster than others, and frankly, that’s fine.
What you don’t want to do is jump in with a solution that that you will regret later. We see a lot of that among market participants who made technology-related decisions a year or two ago. Being a pioneer or first mover may not always be best, unless you first think through how it will work in practice.
The pitfall is failing to understand when you make these decisions, what you are going to get at the other end, and how you are going to maintain and scale it. Unfortunately, there are many technology solutions that offer a closed and inflexible architecture that effectively locks their clients into their ecosystem. That may work well for the technology vendor, but maybe not so much for the client.
What options are open to managers looking to improve their processes for managing data?
One is to work with a trusted back-office provider, especially one that has made a sizable investment and built out capabilities the way Alter Domus has over the past couple of years. Another option is for managers to do it in-house. That is a very challenging task. It is extremely expensive and keeping up with market standards and best practices may be difficult.
The two approaches are not mutually exclusive and could be melded into a third option where the manager and their administrator work together – the preferred approach. A manager can have their admin provider be a big part of their data platform solutions, while also making the necessary changes themselves. Both need to take the journey at the same time and build solutions together ensuring that they are aligned.
Another option is for the manager to piece together various third-party solutions, licensing a variety of tools and applications from various providers and merging them into one integrated solution. This course of action presents two major challenges.
Firstly, they have effectively recharacterized the challenge as a technological challenge by hiring software providers that often lack critical domain expertise. Therefore, the data they provide may not be as accurate and complete as the manager would desire. They will often need their own team in place, or hire expensive consultants, to make it fit for purpose. Secondly, they may have an extremely difficult job of connecting and maintaining all the different solutions. Trying to solve those problems with several individual software providers can get very expensive.
How has Alter Domus, faced with more clients, more data, and more complex mandates, sought to meet those challenges?
We have made large investments in automating and scaling our capabilities to support our clients through our Accelerate program, which began over two years ago. We have greatly enhanced the capabilities of our applications, workflows with our clients, and the delivery of data and analytic solutions to them. We are locked arm-in-arm with a lot of our clients on that journey.
Over that period, we have been doing the foundational work to aggregate data, tag it, build workflows, tools, engines and analytics – all sitting underneath our soon-to-be-released Vega platform. Vega will provide a single, centralized platform where clients can access all the Alter Domus tech solutions – and there are many – they currently use and “shop” for others. And within Vega, if clients want an aggregated view of the data across their portfolios, they can access that through our Gateway application, or for our admin clients through our market-leading and time-tested CorPro platform. These platforms allow our clients to drill through all their funds to look at consolidated exposures and correlations while performing advanced analytics on their alternatives portfolio.
How do you expect digital platforms to evolve? Could AI have an impact?
Over the next couple of years, the market will be very busy tackling the challenges of data accuracy, scalability, efficiency, agility and usefulness. And along the way, technology will continue to evolve. At Alter Domus, while the data we are bringing into the Vega storefront is substantial, it is probably not complete.
As our clients become more successful at managing their data, they may need more capabilities to keep growing. AI could help in this regard. Alter Domus is already incorporating elements of AI into our solutions, for document classification, script/code re-writes, and document data extraction, for example.
AI could be used to create applications that sit within the data ecosystem, providing tailored processing, analytics and reports. However, it is critical to understand that without a clear focus and direction for using AI, organizations could just be spending a lot of time and money on theoretical impractical solutions. Our approach is to look for short term wins that show how AI could be part of the solution. As we demonstrate the utility of AI, we would move to more complicated solutions. But for now, AI practicality dwarfs AI pipe dreams.
How can applying digital solutions benefit investors, and administrators working on their behalf?
Gus Harris: Investors want to see and understand performance. Employing digital solutions can help them to generate greater returns at a certain level of risk, as well as fine-tuning that risk and better identify which risks they want to assume. That is because they can more readily perform analysis that they were not able to perform before, drilling through to the risk factors: credit risk, property risk, demographic risk. In other words, they demand more transparency. It is very exciting what this opens for investors in the alternatives marketplace. I am very confident we are going to get there as an industry and that Alter Domus will be there helping our clients along the way.
If you do not receive this within five minutes, please try to sign in again. If the problem persists, please email: 
