The majority of global investors surveyed by Dynamo Software this summer — 56% — say they plan to increase their alternative investment allocation over the next 12 months, compared with 55% in the company’s 2022 survey, according to findings shared exclusively with Alternatives Watch.
Dynamo’s Frontline Insight Report, published in partnership with Northfield Information Services, surveyed more than 100 global LPs and asset allocators online in July and August 2023. Officials concluded that lack of change over the interest in further investment in alternatives from the previous year may be notable in and of itself.
Most (71%) continue to see the best opportunities in North America. Asia and Europe are of interest to a small subset of allocators (14% each), but no LPs reported plans to deploy capital in the Middle East market.
Of the LPs looking to put money to work in the coming year, 86% are planning to do so via fund managers, Dynamo found. Co-investments though remain popular with over 61% planning to invest in those deals, which is up from 54% last year. Secondaries too are attracting greater interest with 36% of LPs expecting to go that route as opposed to only 28% last year.
On the heels of the FTX scandal and most recently the upset of the SEC in the Grayscale Bitcoin Trust ETF court case, cryptocurrency interest fell sharply from over 13% of allocators interested in the sub asset class in 2022, to just over 3% this year. Dynamo said the findings make sense, as investors seem to be steering clear of more volatile investment strategies. Also, cryptocurrencies are not seen as a hedge against inflation, officials added.
AI dominates tech portfolios, in-house innovation
Generative AI is seen as the top priority for global LPs (43.7%) in terms of where they would like to see their technology-focused managers invest. This trend was followed by edge computing and native clouds. Automation and hyperautomation were also of interest.
Dynamo has found both LPs and GPs increasingly looking to implement these same technologies in their own offices.
For LPs, they see it as an opportunity to improve the recruitment and retention of high-quality talent, the report said. Recruitment/retention was listed as the third-biggest challenge for LPs behind economic uncertainty and automation of manual processes.
Dynamo reported that the ongoing difficulties of maintaining high-quality, accessible data is behind LP’s interest in automaton. Firms are finding that incomplete, inaccurate or difficult-to-consume data is often the culprit behind an inability to modernize, they said, and for leveraging generative AI tools the incompleteness of data can hamper efforts.
The report cited research from McKinsey that found the average knowledge worker spends 2.5 hours a day, roughly 30% of their time, searching for information. Fintech tools, Dynamo said, can help with automation and that in turn will help with retaining and recruiting employees. They said that these systems can help keep institutional knowledge within the organization rather than walking out the door as employees leave. The automation piece eases the pressures of manual work, in addition to saving time.
The 2023 LP survey respondents said their top priority over the next 12 months is the removal of manual data tasks, along with the ability to introduce automated workflows. The second priority is the ability to enable teams to manage new investment structures. And coming in third was creating strategies to optimize team productivity and build workflow efficiencies. In the 2022 LP survey, these were reversed in position. Overall, the top three priorities remain unchanged for LPs as compared with last year, Dynamo said.