The need for efficiency will drive technology adoption over the next 12 months.
Private capital has generally been slow to see the benefits of new technology, especially in comparison to public markets.
It may have got away with these low-tech tendencies in the past, but pressure on the sector is growing. As managers struggle to cope, a new focus on the benefits of digitalisation is emerging.
So, what does that mean in practice? Here we consider five fund technology trends for 2023 and beyond.
1. Data challenges in private fund management
Questioned in research for our recent Halo Framework, 75% of respondents highlighted the inability to consolidate siloed data as a major challenge.
Data is a huge opportunity for private capital–and a huge problem. Investors and regulators are requesting ever more of it. Complex deals need to be closed quickly. The effective management of data is key to meeting these challenges.
That’s easier said than done. Many funds are hamstrung by legacy systems that don’t talk to each other. For small and medium-sized funds, the cost of some new technology is prohibitively high.
But as our research shows, fund managers are at least recognising this problem and many will start putting transformational plans into action in 2023.
It won’t be easy and it won’t be quick. But managers accept that “doing what we’ve always done” is no longer an option.
2. Private capital’s use of automation in the front and back office
As well as increased requests from regulators and investors, managers are feeling the heat from huge stores of dry powder. That capital needs to be deployed quickly and effectively.
Automation, driven by artificial intelligence (AI), has been helping to streamline front-office decision-making for some time.
In 2023, it will start to seep from the front office to the back. As deals become more complex, and volumes increase, back-office efficiency will become a differentiator for funds. The automation of operations will drive competitiveness.
To take one example, automation of payments processes can free up significant amounts of time and hugely accelerate invoicing, payments and reconciliations.
End-to-end automation in these areas is still some way off for small and mid-sized managers, but it will happen eventually. This year will see the beginning of the end for many clunky manual processes.
3. In 2023 tech may only have a limited use in recruiting talent for funds
The problem some fund managers find as they look to leverage the benefits of technology is a lack of suitable talent.
Good IT staff are hard to come by. Good IT staff with fund experience, even more so.
This will be a difficulty for managers through 2023 and beyond. They want to utilise new technology but face stiff competition for the talent to make that happen.
Software and partners that provide application filtering or CV scraping will only go so far.
There’s no easy answer here, and the extent of the challenge will depend on factors such as location and reputation.
But automation can help, because it allows you to do more with the staff you already have.
4. Private capital group’s transition to the cloud in 2023 is inevitable
Since the great experiment in home working that accompanied the Covid pandemic, we’ve all grown used to the benefits of cloud computing.
But despite obvious advantages around anytime access, enhanced data security and cost, many small and mid-sized private capital funds have been behind the curve in moving workflows and processes to the cloud.
We think this will accelerate in 2023, because the benefits of cloud are impossible to ignore.
Partners will be key. Cloud-based back-office functions offered on a software as a service (SaaS) model will be the way forward for many smaller managers. More funds, however, will migrate to the cloud in 2023 by leveraging the technology assets of third-party providers.
5. Our message to funds in 2023? Use tech inventively or get left behind
The overarching message for 2023 is that funds need to innovate or fall behind. The spreadsheet-based back office will continue its slow slide into obsolescence.
There are any number of reasons for that. Managers deploying mountains of dry powder need to scale without piling on costs. Investors and regulators are calling for more data, more often. Many deals are increasingly complex or bespoke, requiring more administration.
For these reasons, 2023 will be a year of gradual but accelerating technological progress in the private funds industry. It has to be. The competitiveness of the sector is at stake.