Nasdaq-listed alternative investment technology giant SS&C Technologies Holdings sees investors planning to grow their commitments to private debt and private equity over the next 12 months. And that translates into more growth within the artificial intelligence realm.
According to SS&C’s first annual Emerging Manager report, Embracing the New, the likelihood of investors making new allocations to emerging managers in the next 12 months is very low, but newer managers are already in most allocators’ portfolios.
The survey of 80 LPs and 63 GPs was released as part of SS&C’s 2023 Deliver Conference in Austin, which welcomed over 1,000 executives from across the global financial services industry eager to learn about industry trends and SS&C’s latest offerings across fund administration, loan management, private markets investor services and innovative intelligent automation technology based on artificial intelligence.
Approximately 88% of LPs said they are looking for higher alpha opportunities, and 70% are focusing on unique strategy sets via emerging manager allocations. Roughly 65% of LPs favor private market investments.
GPs report a challenging fundraising environment, but most intend to focus on established markets in North America and the EU.
“Despite a persistently difficult environment for fundraising, more than two-thirds of GPs and LPs we surveyed are invested with emerging managers and continue to see opportunities in the segment,” said Bhagesh Malde, head of SS&C GlobeOp, the fund operations unit which has more than $2 trillion in alternative assets under administration. “To enhance their visibility, emerging managers are turning to technology, leveraging artificial intelligence to automate tasks and alleviate operational burdens within their teams.”
Malde confirmed that SS&C is now piloting with industry-leading clients development of new investor reporting tools in a bid for establishing a transparency standard as the new SEC rules for private fund advisors center on manager transparency and investor communications. While compliance teams will look at quarterly disclosures and conflict of interest concerns, emerging managers will likely be more apt to review side letter disclosures as traditionally newer managers have offered fee and other incentives to early investors.
“Right now fundraising is taking longer than it did a year ago,” Malde added from the sidelines of the conference. “If they want that money they will have to give the investor what they want.”
More than half of emerging managers surveyed highlight time and resource constraints, with nearly 70% saying their operational infrastructure would benefit from an upgrade. The survey found that tech investment is driven by efficiency and automation to reduce manual work (69%) versus cost savings (27%). Meanwhile, 60% percent of GPs say they are using artificial intelligence in their business to drive efficiency gains — and 20% of them are piloting or implementing it.
Top of mind though for emerging manager investors as well as established GPs is the ability to provide transparency to LPs, according to SS&C. Asked to rank the most influential factors on their investment decision-making process, the biggest share of investors placed team expertise and complementary skillsets at the top, followed by the transparency and quality of reporting and fund terms and fee structures.
Much of the firm’s focus on intelligent automation for both LPs and GPs comes follows the company’s purchase of robotics process automation firm Blue Prism last year. The division has grown in its offering of up to 800 digital workers across SS&C’s multi-faceted technology franchise.
Malde said they were aiming for up to 1,000 digital workers by the end of the year at GlobeOp. Areas such as trade reconciliation and investor onboarding are prime targets for employing automation. One or two digital workers can really change the operational process, he said. That digital worker can take two or three hours out of your day, he said. That translates into a better work/life balance and both LPs and GPs to have more time for bigger, more impactful decisions.