Managing Alternatives at a
Traditional Asset Management Firm
April 13, 2016
www.investtechsystems.com© InvestTech Systems Consulting LLC 1
Which AI assets class is your biggest challenge today?
PE
H...
www.investtechsystems.com© InvestTech Systems Consulting LLC 2
Managing Alternatives at a
Traditional Asset Management Fir...
www.investtechsystems.com© InvestTech Systems Consulting LLC 3
Professional Highlights
Relevant Experience
Education
 Jer...
www.investtechsystems.com© InvestTech Systems Consulting LLC 4
Professional Highlights
Relevant Experience
Education
• Pam...
www.investtechsystems.com© InvestTech Systems Consulting LLC 5
The Leading Buy-Side Investment Industry Consulting Firm Sp...
www.investtechsystems.com© InvestTech Systems Consulting LLC 6
Managing Alternatives at a Traditional Asset
Management Fir...
www.investtechsystems.com© InvestTech Systems Consulting LLC 7
Let’s agree on the definition of AI for the buy-side
By Inv...
www.investtechsystems.com© InvestTech Systems Consulting LLC 8
Survey of AI Investors
$-
$500.0000
$1,000.0000
$1,500.0000...
www.investtechsystems.com© InvestTech Systems Consulting LLC 9
Definitions: Structures
One of the biggest challenges is th...
www.investtechsystems.com© InvestTech Systems Consulting LLC 10
Industry Drivers
1. Larger allocation to alternative asset...
www.investtechsystems.com© InvestTech Systems Consulting LLC 11
Managing Alternatives at a Traditional Asset
Management Fi...
www.investtechsystems.com© InvestTech Systems Consulting LLC 12
Challenges - People
• Finding people that understand the n...
www.investtechsystems.com© InvestTech Systems Consulting LLC 13
Challenges – Process 1/2
• Not a lot of lead time given to...
www.investtechsystems.com© InvestTech Systems Consulting LLC 14
Challenges – Process 2/2
• More complex legal documents an...
www.investtechsystems.com© InvestTech Systems Consulting LLC 15
Challenges - Technology
• Most existing FOMOBO systems don...
www.investtechsystems.com© InvestTech Systems Consulting LLC 16
Managing Alternatives at a Traditional Asset
Management Fi...
www.investtechsystems.com© InvestTech Systems Consulting LLC 17
Best Practices Solutions
1. Assess insource vs. outsource ...
www.investtechsystems.com© InvestTech Systems Consulting LLC 18
Outsourcing: Investment Value Chain
Confirm &
Settlement o...
www.investtechsystems.com© InvestTech Systems Consulting LLC 19
Outsourcing: Landscape
Client
coverage
Complete
Limited
Fu...
www.investtechsystems.com© InvestTech Systems Consulting LLC 20
PE Market Analysis of Vendor Universe
Vendor Universe Asse...
www.investtechsystems.com© InvestTech Systems Consulting LLC 21
Data
Repository
Potential AI Vendor Landscape
Middle Offic...
www.investtechsystems.com© InvestTech Systems Consulting LLC 22
Normalized data environment to construct and implement inv...
www.investtechsystems.com© InvestTech Systems Consulting LLC 23
Managing Alternatives at a Traditional Asset
Management Fi...
www.investtechsystems.com© InvestTech Systems Consulting LLC 24
www.investtechsystems.com
Thank you!
Upcoming SlideShare
Loading in …5
×

InvestTech FTF Webinar Managing Alternatives at a Traditional Asset Management Firm (for distribution)

341 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
341
On SlideShare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
5
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

InvestTech FTF Webinar Managing Alternatives at a Traditional Asset Management Firm (for distribution)

  1. 1. Managing Alternatives at a Traditional Asset Management Firm April 13, 2016
  2. 2. www.investtechsystems.com© InvestTech Systems Consulting LLC 1 Which AI assets class is your biggest challenge today? PE HF Derivatives Credit/Debt/Loans/Mortgages Real Estate and Infrastructure Where are your greatest AI technology gaps? Portfolio Management and Front Office Back Office and Accounting Data Management Financial or Investor Reporting What is the next AI Asset class on your horizon? Participant Survey Questions
  3. 3. www.investtechsystems.com© InvestTech Systems Consulting LLC 2 Managing Alternatives at a Traditional Asset Management Firm Pamela Bloom, Practice Manager of Alternative Investments Jeremy Hurwitz, President InvestTech Systems Consulting • Mainstream investment management firms are adding alternative asset classes • through direct investments • placing AI allocations into traditional fund structures • “funds of one” and separate accounts with firms that have AI track records • Creates havoc for traditional front, middle, and back office - trying to squeeze a loan into a bond security type or a PE portfolio company into a traditional issuer • What are the options - to implement another system, outsource, add more domains to their data warehouses, etc. • We will discuss some of the problems and solutions and begin the process of systematically tackling the nagging questions about what should be being deployed to help support Alternative Investments
  4. 4. www.investtechsystems.com© InvestTech Systems Consulting LLC 3 Professional Highlights Relevant Experience Education  Jeremy Hurwitz is an expert in Investment Systems Technology and Enterprise Data Management with over 25 years of experience.  His focus encompasses all disciplines including strategic architecture planning, data architecture design, operational transformation, maturity modeling, evaluation, selection, design and implementation.  He led business reviews, current state analysis, future state design, architecture roadmap, selection and implementation of key data management and investment systems including portfolio management, risk, analytics, performance, compliance, trading, accounting, client reporting, BI and data storage.  Prior to InvestTech, he served as VP of Investment Technology at Columbia Savings and Loan where he led trading and investment management technology related to managing the firm’s $6B high-yield portfolio. • MBA, Portfolio Management and Securities Analysis Credits, UCLA Anderson School of Business • Honors Post Grad in Business Information Systems, WITS University, South Africa • BS, Computer Science and Applied Mathematics, WITS University, South Africa Jeremy Hurwitz Principal and Founder  Large Hedge Fund Manager – As lead EDM Architect in a complete operational transformation, Jeremy managed the strategic EDM architecture design and roadmap. He also assisted with operational outsourcing, selection of data warehouse, reference data, metadata and BI tools.  MassMutual – Jeremy led the EDM architecture design and deployment, which included evaluation and selection of business intelligence, reference data and data warehouse. He also designed and assisted with data governance roll-out.  Northwestern Mutual – Jeremy served as the strategic data architecture in designing and reengineering the replacement of legacy data platforms including reference data, data warehouse, integration and reporting.  Ares LP and Apollo Advisors – Jeremy worked collaboratively over 15 years on investment systems, operations and data management from start- up to current state.  Other Relevant Projects – Nuveen, T Rowe Price, KKR, CalPERS, HIMCO, OPERS, Ontario Teachers, Capital Group, Nationwide Insurance, Allstate Insurance, Principal Capital, Crescent Capital, Thrivent
  5. 5. www.investtechsystems.com© InvestTech Systems Consulting LLC 4 Professional Highlights Relevant Experience Education • Pam Bloom is an expert in alternative investments and buy-side asset managers with over 20 years experience. • She has unique experience of providing services as both a consultant and as an in-house IT and Operations Director. • She also has a comprehensive understanding of diverse business requirements and systems needs in trading, compliance, reporting and performance of the many alternative asset classes including, but not limited to, privates, syndicated loans, mortgage assets, high-yield bonds, swaps, etc. • Pam has managed and implemented complicated investment management projects for asset managers with concentrated multi-currency fixed income and alternative asset class portfolios including structured funds like CLO’s, CDO’s, Private Equity and Debt and Hedge Funds. • She has also managed and consulted on many portfolio trading and accounting selections, implementations, and upgrades with heavy concentration on performance, compliance and data conversion. • CPA (inactive) registered in the state of California • BS in Business Administration from the University of Arizona Pam Bloom Alternative Investments Practice Lead • Fortress Investment Group – Leading strategic effort, selection and implementation of investment sub ledger for permanent capital vehicles including Mortgage REITS (RMBS/Repo’s/Mortgage performing and non performing loans/MSR’s/SA’s). • Bain/Sankaty – Documented data warehouse and reporting requirements and evaluated Paladyne (Broadridge) and IVP Polaris as possible solutions. • Crescent Capital Group – Led the entire separation and decoupling from TCW. Selected and then moved all middle and back office functions from BNYM to SS&C/GlobeOp. Implemented Black Mountain Systems to wrap multiple out-sourced providers. • DDJ Capital Management – Provided strategic investment decisions during high growth period. Led the selection of a OMS, Trading, compliance and DWH and implemented Black Mountain Systems across a hybrid of SMA;s and Fund accounts • CalPERS ( Private Equity Group) – Led the requirements RFP for the selection of a new private equity service platform. • KKR Asset Management – Conducted a strategic architecture and business process requirements review process and assisted in the decision to outsource vs. in house middle and back office. • Ares Management LLC and Apollo Advisors – Instrumental in assisting the companies growth over a 10 years period from start-up to mature state
  6. 6. www.investtechsystems.com© InvestTech Systems Consulting LLC 5 The Leading Buy-Side Investment Industry Consulting Firm Specializing in Strategic Design, Investment Systems & Applications Evaluation, and Technology Integration • Founded in 1993 with offices in Los Angeles, Boston and Toronto • 70+ Experienced Investment Systems Consultants  Former CTOs, CIO’s, Heads of Operations, Data Architects, Solution Subject Matter Experts  Senior Management team averages over 25 years industry experience • Serving over 400 Global Investment Management Firms  Institutional Managers, Advisors, Insurance, Mutual Funds, Wealth Managers, Pensions, Hedge Funds, Central Banks, Brokerage, Endowments & Foundations • Core Practice Areas: Investment Operations, Front Office, Alternative Investments, Enterprise Data Management, Risk Management, Wealth Management About InvestTech
  7. 7. www.investtechsystems.com© InvestTech Systems Consulting LLC 6 Managing Alternatives at a Traditional Asset Management Firm • Alternatives Defined and Industry Trends • Challenges with Managing AI Asset Classes • Best Practices Solutions • Questions and Answers Agenda
  8. 8. www.investtechsystems.com© InvestTech Systems Consulting LLC 7 Let’s agree on the definition of AI for the buy-side By Investment Types • Hedge Funds - Direct and Funds of Funds • PE - Direct, Fund, Funds of Funds • Real Estate and Infrastructure - Direct Asset, Funds, REITs • Illiquid Credit • Private Debt (direct lending, mezzanine, etc.) • Distressed Debt (non-performing bank loans, mortgage & consumer loans) • Structured Products (CLO/CDO, Credit Derivatives) By Characteristic • Illiquid - trades infrequently and with little volume • Requires alternative methods for analysis • Price infrequently and require valuation models • Performance calculations require different methods (IRR, effects of leverage) • Often not exchange traded AI – the oldest ‘next big thing’
  9. 9. www.investtechsystems.com© InvestTech Systems Consulting LLC 8 Survey of AI Investors $- $500.0000 $1,000.0000 $1,500.0000 $2,000.0000 $2,500.0000 Direct RE Funds Illiquid Credit Direct HF Direct PE Funds PE FoF FoHF AI AUM Top 100 Firms 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% Direct RE Funds Illiquid Credit Direct HF Direct PE Funds PE FoF FoHF % Expected Growth
  10. 10. www.investtechsystems.com© InvestTech Systems Consulting LLC 9 Definitions: Structures One of the biggest challenges is that AI comes in many shapes and sizes and there are vehicles in addition to direct investment • Manager/Sub-Advisor/Strategic Partnerships • Funds of One • SMA’s • Funds of Funds • Co-Invest • Joint Ventures • Publically Traded (MF, HF, 40-Act and BDC) • On Shore/Off Shore and Tax Advantaged The need to look-through and use the underlying holdings data drives changes in procedures and solutions
  11. 11. www.investtechsystems.com© InvestTech Systems Consulting LLC 10 Industry Drivers 1. Larger allocation to alternative assets funded from traditional asset classes expected to continue 2. Non-US alternates gaining greater acceptance – global exposures 3. Enables portfolio diversification and risk management 4. Driving Yield, Alpha and Beta  Investments with substantially distinct and uncorrelated returns from traditional stocks and bonds with richer risk / return characteristics 5. As index and passive mutual funds becoming the “norm,” AI can be a key differentiator of Managers (search for higher fees) 6. Barrier to entry has been mitigated by first generation of AI becoming mainstream 7. Fund Managers willingness to provider greater transparency leads to new acceptance to invest via SMA’s and Funds-of-One making it easier to manage
  12. 12. www.investtechsystems.com© InvestTech Systems Consulting LLC 11 Managing Alternatives at a Traditional Asset Management Firm • Alternatives Defined and Industry Trends • Challenges of Managing AI Asset Classes • Best Practices Solutions • Questions and Answers Agenda
  13. 13. www.investtechsystems.com© InvestTech Systems Consulting LLC 12 Challenges - People • Finding people that understand the nuances of all the different AI instruments and structures • Repurposing human capital takes significant training and time to “get up to speed” • Experienced resources are scarce for AI specific applications • IT and technology custom development creates key-man risk • Increased staffing costs for specialized marketing and client service staff • Scarcity of AI PM’s leading to buy-outs and mergers, further driving up staffing costs
  14. 14. www.investtechsystems.com© InvestTech Systems Consulting LLC 13 Challenges – Process 1/2 • Not a lot of lead time given to begin processing new instruments • Need for more formal deal flow and pipeline solutions/forward calendar automation • Desires to capture and track CRM type fields and correlate to Advisors/Funds • Trade capture and settlement more manual and error prone • Trades not entered into OMS often bypass pre-trade compliance and allocation rules • Different types of investment analysis and modeling • Tracking of manger fee/compensation structures • PE - Committed vs. Contributed capital and cash management
  15. 15. www.investtechsystems.com© InvestTech Systems Consulting LLC 14 Challenges – Process 2/2 • More complex legal documents and T&C’s to capture • Limited reference data providers and more manual process adds risk to investment accounting and analytics • Distressed asset valuation processes are manual and can cause delays in closing periods and reporting • Different / more complex performance measurement methods • Complex exposure reporting – looking through the underlying credit and counterparty relationships • More demanding regulations and compliance restrictions on the horizon
  16. 16. www.investtechsystems.com© InvestTech Systems Consulting LLC 15 Challenges - Technology • Most existing FOMOBO systems don’t natively handle AI  AI assets are stuffed into traditional asset class set up • Proliferation of one-off spreadsheets • Traditional vendors playing catch-up  DWHs and Marts don’t have specific AI domains • Specialized vendor solutions lag the market • Best-of-breed models require numerous specialized solutions and interfaces • Internal development = large undertaking = high risk • Challenges with Total AUM and consolidated Reporting  Inconsistency in asset roll-up (Par vs. Quantity vs. Notional vs. RE, etc.)
  17. 17. www.investtechsystems.com© InvestTech Systems Consulting LLC 16 Managing Alternatives at a Traditional Asset Management Firm • Alternatives Defined and Industry Trends • Challenges of Managing AI Asset Classes • Best Practices Solutions • Questions and Answers Agenda
  18. 18. www.investtechsystems.com© InvestTech Systems Consulting LLC 17 Best Practices Solutions 1. Assess insource vs. outsource opportunities  Outsource providers making strides in breadth and depth of services 2. Select best-of-breed sub-asset class solutions  Align new solutions to your data management and architectural strategy 3. Expand and consolidate data models to support custom AI data  Flexible data structures to support AI instruments  Complex fund, product and instrument structures  Unified “gold copy” data fields with definition and ownership  Transparency into underlying and constituent data with extensive T&C’s 4. Build BI services to eliminate the spreadsheet mentality  Self-service dashboards with analytics and click-through capabilities 5. Govern and Quality Control the AI data  Enforce business data ownership and knowledge collaboration  Implement UI workflows and data quality routines to support manual processes
  19. 19. www.investtechsystems.com© InvestTech Systems Consulting LLC 18 Outsourcing: Investment Value Chain Confirm & Settlement of Exchange Traded and OTC contracts including Life Cycle events, Corp. Actions and resultant cash flows Confirmations & Settlements Daily calculations and movements of all margin and collateral positions Collateral / Margin Mgt Risk oversight on Portfolio Management activities (exposure monitoring, risk profiles) Portfolio Risk Oversight Performance on all structures (portfolios, funds, composites) to mandated benchmarks, attribution analysis Performance Measurement External client reporting for all investment vehicles Client Reporting Posting of all accounting entries and production of accounts Investment Accounting Fund accounting, NAV calculation and monitoring, daily & monthly reporting Fund Accounting Management of all shareholder servicing Transfer Agency Safekeeping assets, cash availability, reconciliation, income/tax reclaims, monthly and ad-hoc reporting Custody Reference and Market Data management (Security Master File, Pricing), Data Quality checks Data Management Asset gathering, investment research and portfolio modeling, trade order management & execution Asset Mgt & Trading Middle OfficeFront Office Back Office Information Technology Services (SaaS, PaaS, DaaS, IaaS) Focus on business efficiency and the need to secure optimum returns are stimulating investment in renewed approaches to asset servicing. Unlike more commoditized back-office functions such as custody and fund accounting, global sourcing of middle-office operations is not a “cost race to the bottom”. The service priorities are speed, accuracy and cost, with accuracy the most important factor, while 50% of asset management firms consider that cost is not an important factor at all when it comes to middle-office outsourcing. 1970’s2000’s Outsourcing Timeline *Note that services for Alts specific lag the traditional offerings
  20. 20. www.investtechsystems.com© InvestTech Systems Consulting LLC 19 Outsourcing: Landscape Client coverage Complete Limited Functional coverageLimited Complete BNYM State Street JP Morgan Citi Northern Trust Citco Hedgeserv SS&C GlobeOp SimCorp Morgan Stanley SEI Service Providers with strong Alts offerings
  21. 21. www.investtechsystems.com© InvestTech Systems Consulting LLC 20 PE Market Analysis of Vendor Universe Vendor Universe Assessment# Vendor Name Product(s) 1 eFront FrontInvest 2 Sungard Investran 3 Burgiss Group Private I, Private IQ 4 ViTech Systems Group EquiTrak 5 Backstop BackstopPM 6 3i InfoTech Framework 7 DAVIGOLD LBOffice 8 Relevant Equity Systems Equityworks 9 Analytx PEO 10 Vantage Software VantageSuite 11 Baxon PE 12 e.Venture Systems Limited eVenture 13 Vertice Technologies AltaReturn 14 Koger Pentas 15 App-X AIM 16 ClearMomentum 17 Digital Shape Technologies Webfolio 18 Sound Harbor Partners Trace Point 19 iLevel Solutions, LLC Ilevel 20 Burgiss Group PrivateInformant 21 Thomson Reuters LPXpert 22 NYPPEX NYPPEX 23 Pitchbook.Com Pitchbook 24 PrivateEquity Database PrivateEquity Database 25 SS&C Technologies TNR Solution 26 SEi Investran/Geneva, DWH, Web portal 27 State Street Bank Private Edge/Efront 28 CITI 29 JP MORGAN 30 BNYM Private I 31 Northern Trust Private I, Private IQ, PrivateInformant custom PE cash flow forecasting model, Private Outlook. 32 Portfolio Advisors 33 AltResources 34 Augentius 35 FLSV Fund Admin Services 36 Ipes 37 Citco Fund Services 38 Brown Brothers Harriman & Co. Infomediary InvestTech Market Analysis Informal Vendor Interviews or Demos Vendor Profile and Risk Assessment Peer Assessment # Short-List Type 1 eFront FrontInvest COTS 2 Sungard Investran COTS 3 Burgiss Private I COTS 4 Vitech EquiTrak COTS 5 Backstop Solns BackstopPM COTS 6 SS&C TNR Hybrid 7 SEI Multi Hybrid 8 JPMorgan Muti Service 9 Citi Private Equity Services Service 10 Northern Trust Multi Service 11 BNYM Muti Service 12 State Street Multi Service
  22. 22. www.investtechsystems.com© InvestTech Systems Consulting LLC 21 Data Repository Potential AI Vendor Landscape Middle Office IBOR Front Office TBOR Back Office ABOR B-Rock / CRIMS / T-Folio Advent Geneva JPM, Citco, NT, SEI, SS&C, BNYM, SSB Weak...…Medium…….Strong Traditional OMSs. Heavy investment in Derivatives. Less into Alts. Handle some classes (Bank Debt). Gaps in PE, REO and Loans. Risk increase with AI complexity. Vertical AI Platforms present as best of breed in their AI niche. Typically customized to support single AI classes: PE, Loans, CDOs, Real Estate, Credit, Data Repositories Strong integrated I-ABOR-EDM-Performance platform. Current H-Fund client adding breadth in derivatives and data service layers. V. Strong ABOR-IBOR + Hedge solution across all security types. Weaker on proprietary DB and performance measure. Range of service providers offering a full set of AI services or specific vertices – typically leverage the vendor systems listed above within their platforms Summary observations FusionInvest / Calypso / Summit / Murex BMS Everest Eagle, SimCorp eFront, Investran, TNR, Dynamo, Vitech Yardi, MRI BMS Polaris MIK Addepar Broadridge Investcloud Vistaone WSO SimCorp
  23. 23. www.investtechsystems.com© InvestTech Systems Consulting LLC 22 Normalized data environment to construct and implement investment portfolio management decisions, service clients, and manage risk Next Gen Data Services Platforms Flexile security classification data Full transparency look-through Follow-the- Money (strategy PL) Aggregated, intra-day client portfolio data/views Consistency of computed & analytics data Data Sources Advanced Refactored Data Repository Investment Data Optimization Aggregation / Normalization / Grouping / Validation / Governance / Distribution Data Optimization Platform Market Data Securities, Reference, Pricing, Ratings, Analytics Investment Managers Research, Reference Data, Analytics Trades, Positions, Research Custodians Securities, Reference, Pricing, Holdings Securities Accounting & Other Sources / Systems Securities, Ref Data, Pricing, Holdings
  24. 24. www.investtechsystems.com© InvestTech Systems Consulting LLC 23 Managing Alternatives at a Traditional Asset Management Firm • Alternatives Defined and Industry Trends • Challenges of Managing AI Asset Classes • Best Practices Solutions • Questions and Answers Agenda
  25. 25. www.investtechsystems.com© InvestTech Systems Consulting LLC 24 www.investtechsystems.com Thank you!

×