Following the release of two primary research reports detailing the findings from our global LP survey and GP survey, we received a number of questions from clients, prospects, and stakeholders across the FinTech industry. There was a lot to unpack in the research, which took a closer look at how LP and GP alternative investors are thinking about economic uncertainty, business priorities, and what they need from technology today.
In this article, we’ll look at the topline takeaways from each survey, and we will provide our take on the key questions we received from our respective vantage points as GP and LP tech product leaders.
For Each Audience, Three Major Themes About Mindset
As we are now months into 2023, it seems the only thing that’s certain is the high level of uncertainty about what lies ahead. Both surveys were completed before the picture became even more complicated by new fears in the banking sector following the Silicon Valley Bank collapse. That said, although GPs and LPs differed on certain issues, there were still common threads to be found.
LP Survey Key Findings
- Alternative investments remain a key strategy, with 96% of LPs expecting to increase or maintain allocations.
- LPs have no plans to decrease tech budgets. In fact, more than half expect to increase in 2023.
- LPs are looking to automation to address the need for greater productivity amid talent shortages.
GP Survey Key Findings
- GPs demonstrated confidence in their existing investment strategies. with 68 percent saying they will not further diversify their portfolios in 2023.
- The majority of GPs are remaining cautious about costs, with 88% indicating they won’t change their firm’s management fee structure.
- Tech budgets are untouchable, with 94% indicating budgets will stay the same or increase.
Top Questions About LP and GP Alternative Investments Research
Following are summary responses to several questions we received in response to our research findings. To hear the entire Q&A session with full responses, make sure to check out the recording from our March webinar, Around the Table: An Analysis of GP & LP Sentiment.
What was most surprising in the latest GP survey findings?
Steve: For me, what was most surprising was that 25% fund managers expected to decrease allocation to alternatives, when the reality is that LPs plan to increase allocations over the next 12 months. With the current state of the economy and stock market performance, my expectation was that investors would continue to allocate toward alternatives. I think fund managers were conservative, maybe even pessimistic, due to fundraising efforts being more challenging than in the past.
Matt: I was surprised at how closely GPs and LPs were aligned on maintaining, if not increasing, technology budgets. For me, that implies a lot more than financial planning, It indicates an ongoing commitment to investing their teams’ time in adopting technology. It also aligns with a shift in perspective I’ve seen firsthand among LPs in the last few years. Adopting technology is no longer pursued only periodically, it’s viewed by LPs as a strategic and tactical enabler for achieving their objectives.
Why do you think GPs and LPs differ on priorities around implementing new FinTech?
Steve: It was great to see creating efficiencies as the number one priority for both GPs and LPs. I was surprised to see how important cost was to GPs. With how much more transparency and reporting is asked for by LPs, I wasn’t expecting cost to be as important in decision making, but instead for the focus to be on flexibility and the right APIs to move data in and out in real time.
Matt: LPs who invest across myriad asset classes inherently face more complex data integration challenges than an individual GP who may specialize much more narrowly. Especially within alternatives, each asset class has its own intricacies. There’s also the formidable challenge of aligning disparate asset class Investments for portfolio level performance and risk analysis. Ultimately, I think LPs recognize that there are costly consequences if data modeling and management pitfalls aren’t proactively circumvented. So, I think that’s a driving factor in the differing priorities of LPs vs GPs.
Based on the findings around fundraising for GPs, how is Dynamo addressing this, especially during the economic downturn?
Steve: It’s no mystery that fundraising is a heck of a lot harder now than it was just a few years ago. I think from a platform perspective, it’s our job to help streamline this effort as much as possible. We’ve built proactive functions so managers are nudged to action by certain data triggers. For example, if an investor in a certain fundraising status hasn’t been in communication for more than a week. The rules and triggers are very flexible and can be defined within a manager’s workflow to ensure they don’t miss any opportunities.
LPs are adamant about keeping their commitments and even increasing their exposure within alternative assets. Why?
Matt: LP investment and operations teams spend a disproportionately large mindshare on selecting and engaging with their alternative fund managers. They trust that their managers have the experience and strategies to excel in volatile markets like today’s. Given the strong risk and return value proposition they see with alternatives, LPs’ next question naturally becomes how to grow allocations without degrading quality. It’s on the cost-side that LPs recognize times have really changed. Data automation and the latest analytical methodologies enable them to shift their focus from populating data points to leveraging dynamic data visualizations
Hear More Answers to the Top Questions About GP and LP ALTS Strategy in 2023
Access an on-demand recording of our 30-minute Q&A webinar which addresses how sentiments from GPs and LPs align and differ on key topics.
Steve Tobio serves as Dynamo’s Vice President of Product focused on General Partners. Steve leads Dynamo’s GP vertical and has been in the financial industry for nearly 20 years. He is focused on ensuring Dynamo’s platform makes it easy for investors to consume critical information, while streamlining the communication process for fund managers. Additionally, his team has been focused on the next-generation Dynamo Accounting product, recently recognized by WealthBriefing WealthTech Americas Awards 2023 as the “Best Client Accounting” product.
Matt Keller serves as Dynamo’s Vice President of Product focused on Limited Partners. Matt leads Dynamo’s Limited Partner vertical through product strategy, roadmap definition, client education, and sales engineering. Matt has nearly 20 years of experience partnering with alternative asset allocators and investors to deliver innovative financial technology solutions. He speaks at industry events regularly, and most recently his latest editorial, How Investment Limited Partners Can Advance With FinTech, was featured in Family Wealth Report.