Revolutionizing alts investments reporting: It's time to update legacy practices

What are some of the complexities that growing firms encounter when using alts?

At iCapital, we like to break it down into three main categories – Learn, Invest and Manage. 

The Learn phase encompasses how advisors navigate the complexities in the pre-trade process, entailing diligence and investment education. Once client objectives are fully understood, the allocation to alts, by asset class and percentage exposure, can be mapped. While the choices can be overwhelming, alternative investment platforms like iCapital are making product education and selection easier with a library of educational materials, research, and even certification courses.

Similarly, alts platforms are making the investment process (Invest) smoother through the use of portfolio construction tools, multi-asset investment workflows and pre-built model portfolios. iCapital has reimagined the entire investment experience, directly integrating with Funds/GPs to create a straight-through digital experience and a clean electronic signature (no more sticky notes and missing signature pages!).

Of course, direct deals executed off-platform present complexities in completing subscription documentation and finalizing all closing steps in a compliant manner. The post-trade environment (Manage) is perhaps the least understood and the most complex. Follow-on servicing of alternative investments acquired off-platform requires diligent oversight and planning for upcoming events (capital calls, distributions and transactions), as well as accurate and timely data reporting.

The lack of industry standards creates challenges for those without the expertise and technology to support this step in the process. Alts data management becomes more complex as alts portfolios grow and offline alts documentation is still provided in a plethora of formats (unstructured/analog), residing in a variety of potential locations. The underlying data is only actionable if the documents and imbedded data can be extracted, normalized and validated. This process requires the right combination of technology and oversight to transform this data into a structured and digital format, delivering insights within a total investment reporting construct.

iCapital’s tech-enabled Alts Data Management solution, combined with its disruptive Direct Ledger Technology (DLT), supports the entire industry with infrastructure to more efficiently process and share alts data.

How are advisory firms tracking their use of alts today?

We find that most firms use one of four methods.

Manual processes. Alts tracking is handled manually, which comes with added cost, time and data accuracy challenges. This entails accessing documents from multiple portals, then manually downloading, naming, and saving these documents. 

The next step involves transcribing the data from the PDF’s into their reporting system and conducting a final manual reconciliation. In the event a document is missing, they must not only identify which is missing but then reach out to the GP or Fund Admin to request the missing document.

A combination of manual processes and technology. This approach entails manual document sourcing and a collection of non-integrated technologies in an attempt to “scrape” the data from PDFs into a spreadsheet. From here, the data must be configured to a reporting system-friendly format and then uploaded manually, followed by a final reconciliation.

With the two approaches described above, there is little to no true data validation occurring during the process. This can lead to inaccurate data being loaded into reporting systems and potentially inaccurate performance returns be reported to clients 

Outsource. Hire a firm that specializes in managing alternative data in an efficient, scalable and accurate manner. This is where iCapital’s Alts Data Management solution comes in.

Do not provide. Many firms do not provide consolidated reporting, but rather have their clients rely on the fund managers’ reports for portfolio-specific returns. Alternately, some firms rely on platforms that weren’t purpose-built for alternatives and cannot properly track alts. This can lead to downstream issues with incorrect data being reported to clients.

How do firms integrate alts reporting into their existing portfolio management stack?

Unfortunately, many firms do not have the proper alts reporting tool in their tech stack to support reporting consistently and accurately (particularly in the independent RIA channel). Again, alts acquired through a platform like iCapital will automatically come with reporting and document storage benefits.

For firms doing direct investments or with legacy alts portfolios, far too many are relying on internal teams and manual processes to update reporting systems. For large position counts and growing portfolios (particularly cumbersome when acquired through advisor M&A), this becomes an ongoing challenge.

Managing capital activities alone in a large portfolio can quickly overwhelm an internal staff, causing valuation updates for reporting to be delayed, rushed, and prone to error, or worse - forgotten. Thankfully, more firms are turning to alts data management providers to leverage the power of AI/ML technology to pull alts documents at scale, retrieve key data points and deliver that data, once normalized, directly into reporting systems.

iCapital’s Alts Data Management business, leveraging both technology and professional oversight, is now part of every discussion we have with clients about consolidated investment reporting services. Our ability to connect directly with fund administrators greatly enhances our ability to process data efficiently. We believe total wealth reporting must include alts reporting on a consistent basis in order to make the most informed data-driven decisions.