When Dynamo, in partnership with Northfield Information Services, surveyed a global audience of Limited Partners (LPs) in July and August of 2023, much had transpired since our inaugural LP survey 10 months earlier. For one, as 2022 was drawing to close, a bearish outlook for 2023 was prevalent. Most headed into 2023 with recession on the mind amidst rising interest rates, high inflation, and a slumping stock market.
And yet, by the time of our second survey in Q3 2023 – and still today – the predicted recession is nowhere to be found. To be clear, no one’s popping the celebratory champagne just yet, but there’s certainly more guarded optimism.
Whether the economy is good, bad, or somewhere in-between, the survey showed what hadn’t changed is LPs steady march toward greater technology integration. Here’s what they said in the recently published 2023 LP survey.
Tech Budgets Are Up
In recent years, LPs have recognized the need for their own digital transformation. When surveyed by Dynamo in 2022, even despite abundant recession-talk, 94% indicated tech budgets would either increase or remain the same.
Again in 2023, LPs and asset allocators continued to lean in on plans to build more advanced tech stacks. A similar resounding percentage of respondents – 93% – planned to either increase (49%) or maintain (44%) their technology budgets for the upcoming year.
Perhaps relatedly, during both Dynamo surveys, LPs increase in tech budgets coincided with their growing appetite for alternatives. The opportunities alternatives present for greater diversification and performance are maximized by asset management technology that helps investors understand, evaluate, and manage alternative investment opportunities, deals, and trends.
Keen on Automation
When it comes to where tech spend will go, LPs are enthused about automation – particularly when it comes to reducing the amount of manpower currently dedicated to repetitive tasks. Doing so has not been easy to date. Behind economic uncertainty, LPs ranked automating manual processes as their second biggest challenge.
When LPs were asked to rank their priorities for the next 12 months, automation had a role to play in each of the top three. In order of popularity, LPs and asset allocators said they were focused on:
- Removing manual data tasks and introduce automated workflows.
- Better enabling teams to manage new investment structures.
- Creating strategies to optimize team productivity and build workflow efficiencies.
Processes related to research, portfolio analysis and management, and document/data management appear to be the biggest sticking points for LPs and asset allocators. Very few gave their ability to perform these processes a rank of “excellent.” In fact, as high as 15% (for document and data management) ranked themselves as “poor.”
Automation aligns with broader trends in the financial industry. A 2023 survey of finance executives in North America and Europe found that 65% planned on having half of their duties automated by the end of 2023. LPs, like other financial professionals, are looking to automation to scale their efforts, save time, and reduce human errors and inconsistencies.
Interest in AI is High
While warnings of an existential AI crisis may capture headlines, for most, the real story of technology is its impact on everyday experiences. For LPs, it has the potential for meaningful impact across investment decisions, processes, and outcomes – and they are ready to explore this new terrain.
When asked to rank choices, generative AI was the top fintech area LPs want fund managers to invest in. And, it’s no surprise given how recent advances have captured the collective imagination. There are many potential exciting applications for AI in investment management. It’s not a far stretch to envision how AI might transform investment analytics, due diligence, portfolio optimization, and predictive forecasting.
At Dynamo, we’ve assembled a cross-functional task force to better understand both the opportunities and risks of generative AI amid rising interest by LPs and GPs alike. The prospects are exciting, but we’re approaching it carefully to align any future product offerings with the security, accountability, and responsible investing practices that must balance against AI’s capabilities.
Download the Details on LP Tech Priorities in 2023
The complete findings of Dynamo’s second LP survey provide more detail about how LP investors are thinking about technology to address key challenges and opportunities. It is available to download now. Additionally, Dynamo and Northfield are hosting a webinar on September 27th to further analyze and discuss the report’s key findings.
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.