Some alternatives asset fund administrators choose to develop their own software, and the reasons can be compelling. They can include the desire for a highly customized solution, ensuring integration with other systems, maintaining total control over security measures, or trying to save money by using in-house experts.
Any one of these might motivate tech-savvy fund admins to go solo with software development. But, before making the commitment, it’s wise to consider all the pros and cons.
As a FinTech partner focused exclusively on alternative investments, Dynamo Software’s team has seen (and heard) enough considerable downsides for firms that decide to take their software development in-house. Here are six important benefits we think fund administrators risk missing out on when they look past existing fund accounting software solutions.
Diverse expertise. As an alts FinTech, firms like Dynamo are able to hire a wide array of global talent with specific skill sets pertinent to both the technology and alternative investment fields. In addition to software developers, Dynamo has experts in data management, automation, ESG, and financial professionals who have worked in private equity and venture capital. It is difficult for fund administrator to invest the time and resources to replicate a team of skilled professionals like this in-house.
Innovation. FinTech firms must continuously innovate their products to maintain a competitive edge, so there is inherent motivation to iterative and improve. Forward progress is enabled by the diverse internal community of savvy developers and client users. With more than 1,000 clients, Dynamo has a broad view into how firms use its platform and can translate best practices and feedback into an ongoing innovation loop. When relying only on the perspective of its internal team, fund administrators might lag behind on leading edge features and technologies.
Security. Because the alternatives investment industry deals in large volumes of sensitive financial data, reputable FinTech providers understand the high bar of security and privacy standards that must be met. A good software solution will back up its security claims with clear proof, such as SOC 2 certification. Firms like Dynamo that have achieved SOC 2 certification undergo annual rigorous third-party audits to validate the strength of security practices. Often, in-house software does not undergo the same rigor of security testing, leaving it more susceptible to vulnerabilities.
Speed to market. It can take a tremendous amount of time to design, develop, test, and deploy new software features. FinTech software providers have specialized teams dedicated to each stage of the process, using agile methods to work rapidly and efficiently. Relying on an in-house team with less specialization will take much longer to bring new capabilities to market, putting a fund at a competitive disadvantage.
Scalability. As a fund administrator’s business grows, so do its software needs. It can be difficult for in-house to developers to adequately plan and allocate resources for the increased demands and complexity. FinTech software solutions are designed to scale quickly and easily without requiring an inflated internal headcount.
Opportunity costs. At the end of the day, fund administrators are experts in financial management, not necessarily software development. The time and energy spent on developing proprietary software solutions takes them away from their core competencies. Many fund administrators find that using an existing solution tailored to alternative investments gives them more time to optimize their fund management duties and provide better service to clients.
A Full-Stack Platform Specifically for the Alternatives Investment Ecosystem
Partnering with a FinTech provider who specializes in alternative investments allows fund administrations to bridge the best of both words. They can leverage leading edge technology and bring greater attention to the core business activities that keep their clients satisfied. What’s more, they can avoid the challenges and risks that come with creating and maintaining their own proprietary software.
Dynamo Software CEO Hank Bougher discussed this during a podcast conversation with Convergence. Listen to full interview here.
Donna Parent is the Chief Marketing Officer (CMO) at Dynamo Software. Donna is responsible for the corporate brand, demand generation strategies, and go-to-market initiatives for promoting Dynamo’s end-to-end cloud-based platform to the alternatives ecosystem. She is focused on fueling lifelong relationships with consumers, businesses, and strategic partners. Connect with Donna on LinkedIn.
