Private Asset services in transformation: the road ahead is digital

To the point
 

• The Private Assets (PA) industry still relies on manual, paper-based processes due to multiple providers and complex structures.
• To support Asset Managers and Owners in the PA industry effectively, future global service models must incorporate automation, standardization, and technology to provide scalability, control, and data transparency – aligned with consumers’ expectations for quality service.
• Commercial banks offer capital call and equity bridge facilities for integrated global service model to enhance fund performance.
• The rise of a global service model allows Asset Managers and Owners to focus on core investments with select partners beyond traditional providers.

The entire funds industry recognizes the needs for more automation, standardization, and increased use of new technology in the Private Assets (PA) ecosystem. The global service model of the future to support Asset Managers and Owners in the PA arena needs to incorporate the following elements to offer scalability and control combined with high levels of service and data transparency.

Digitalization of tasks and processes:
 

All stakeholders recognize the key challenges when servicing or investing in PAs, and the abundance of tasks that are manual in nature or paper based. Invariably, this is either caused or exacerbated by having multiple service providers, different entities in different jurisdictions, complex structures, and investments with look-through requirements. In addition, there is an overarching need to manage day-to-day activities, such as capital calls and payments in a scalable manner.

While there is a need for tailored and specific solutions, the ultimate goal is to be able to digitalize and industrialize these processes.

How can we reconcile these seemingly opposing objectives?

One successful pathway is to use technologies optimized for different types of investments and wrap them into a common data architecture and digital channels (e.g., global portals) that facilitate access to key insights, data and reporting for clients and their investors. It is important to enable access to this data via multiple channels, including cutting-edge digital experiences for individual users or highly automated system-to-system data exchange (e.g., via Application Programming Interface, more commonly called APIs).

A secure portal offers clients a single and unique access to all of their data and data points, including data drilldown and exporting capabilities.

As mentioned above, digitalization and automation are not the only elements to consider when developing a compelling, holistic platform for private asset services. In our experience, clients value a partner who can match their business ambitions by providing a broad scope of services and solutions, be that in terms of geographical, functional or asset class coverage. An overall platform-based solution that integrates broad functional (e.g., loan administration) and geographical coverage (multiple Special Purpose Vehicle, or SPV, domiciles), and integrates outsourced partners under a single contractual and governance model can allow clients to outsource more and minimize the overhead associated with their own service provider oversight.

The PAs space is still inherently paper based and manual in some areas. In our experience, it is even more important to focus on the elements of the value chain that can be digitalized and employ flexible, universal solutions to those elements. An example would be investor onboarding, an element of the value chain which is entirely suitable for automation and digitalization with the right technology solutions. A global web portal with automated workflow, document exchange and digital signature capabilities can integrate with client Customer Relationship Management (CRM) systems and fund administration systems via APIs, automating the onboarding process from prospecting and fundraising to initial commitment or subscription processing. Tomorrow, digitization will go beyond this. We may potentially see tokenization of fund units. Already, proprietary banks are beginning to use digital asset platforms, such as HSBC Orion’s bond tokenization.

Even if we achieve this digital industrialization of all investment vehicle activities and services, we will only have built a partial global service model. What else do we need to consider?
 

Cash Services:
 

We know that PAs companies need a banking partner that understands their needs with a full range of cash services that goes from payments solutions to liquidity capabilities and sophisticated FX solutions. These services need to be available 24/7 in all currencies and markets. We also know that while these services are reasonably common, they are not sufficiently offered by commercial banks and this, in turn, can impact the PA global service model. Fortunately, some commercial banks have realized the business opportunities related to cash services, expanding their clients’ services and coverage teams and have developed technological solutions, such as APIs and mobile apps. This complete and comprehensive suite of cash services further completes our PA global service model.

Financing:

Capital call facilities or equity bridge facilities are provided by commercial banks, and therefore can only be integrated in a global service model when the other two components (fund administration and cash services) are also provided by the same entity. Typically, commercial banks will offer these on a global scale, at an asset manager, fund, and portfolio level, and may complement equity bridge facilities with Net Asset Value (NAV) credit facilities. Fund financing provides a number of benefits for a PAs firm, such as reducing the administrative burden, allowing sponsors to commit very quickly during the acquisition process and enhancing fund performance. Fully integrating financing into the global service model further enhances all processes and even increases the safety of them.

Conclusion

While not being completely mature and defined, we can now see the rise of a Private Assets global service model in the industry that will enable Asset Managers and Owners to focus on their core investment activities, while relying on a limited number of partners who go well beyond the role of a traditional service provider. By adopting digitalization of tasks and processes into cash services, financing and more, Private Assets entities will drive efficiency and profits, while meeting consumer expectations for greater data transparency.

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