Portfolio management can quickly become complicated and difficult when tracking performance relies on manual processes. How many hours has your firm spent populating and maintaining Excel spreadsheets to support investment decision making?
LPs and asset allocators surveyed by Dynamo said their top tech priority is creating efficiencies and optimizing workflows. And, when it comes to the areas they most want to adopt new tech to help, portfolio management received top ranking.
If your portfolio management and analytics processes aren’t up to the task, there’s no doubt your time could be used in more efficient and effective ways. What’s more, the right technology can make managing complex portfolios which include alternative investments not just easier, but more deeply insightful.
If simpler and better portfolio management and analytics sound appealing, let’s look at three important functions and how they can be enhanced: tracking performance, managing risk, and planning allocations.
Based on your latest portfolio data, how readily are you able to answer questions like:
“How does the IRR of our buyout portfolio compare to that of venture since its inception?”
“How has Fund A performed since inception relative to its sub-asset class, asset class, and primary benchmark? Versus the portfolio for the last 1, 3, or 5 years?
How have subset X of Portfolio Y’s investments performed collectively YTD? If we hadn’t invested in those funds, what would our portfolio’s returns have been?
How do Portfolio B’s returns compare to a benchmark composed of 70% ALL World Index and 30% Domestic Equity over the past 10, 15, or 20 years?
If the answer can’t be quickly found in a matter of clicks, it’s time for a new approach.
The ability to automate dataflows across myriad fund managers, investor portals, and third-party data providers can be game-changing for LPs who invest in alternatives. Technology can automate the process of collecting and extracting data from various sources, helping to ensure resulting performance metrics are centralized, up-to-date, and easy to navigate.
Centralization and automation also improve the ability to conduct analyses based on the latest available data. This puts alternative investors in a position to make more informed decisions, better capitalize on market opportunities, or evaluate potential risks.
Multi-asset class LP investors need the ability to holistically interpret trends and make informed decisions across their multi-asset class portfolios. By identifying and managing risks more effectively, risk-adjusted returns and improved overall portfolio performance can be better optimized. It’s through the right combination of technology and judgment that sound risk management decisions are made.
Alternative asset technology platforms help investors seamlessly process and interactively analyze their holdings-based and fund reported exposures across investor portfolio, manager, fund, and holding levels. Look-through capabilities apply to exposure verticals spanning region, sector, asset class, currency, country of risk, and security type.
Investors don’t just want the present snapshot of risk – they need to plan and prepare for the variety of scenarios that could play out in the future. Technology makes it much more efficient to conduct allocation planning, scenario analysis, and stress-testing using methodologies finely tailored by asset class to reflect varied market conditions and economic scenarios. Investors can better understand how the portfolio would perform under different adverse conditions and adjust their planning accordingly.
To maximize opportunities in alternative assets, smart investors can make the most of advanced technology to analyze complex data sets and evaluate risk. Once a more daunting burden, portfolio planning can become as simple as opening a dashboard.
Planning Smart Allocations
Constructing a diversified portfolio that reduces exposure to specific risks while maximizing returns is always the goal, but it requires the ability to answer complicated questions. Take for example:
How do the Sharpe Ratios, standard deviations, max drawdowns, Sortino ratios, and alphas compare for funds X and Y?
How correlated is Fund A with Portfolio Y?
How do Fund A’s beta and growth of $1,000 compare to other funds in its sub-sector?
Better technology means analyzing a more comprehensive, aggregated dataset. LP investors can integrate data from multiple sources, including historical performance, market data, and alternative asset-specific data to gain more valuable insights into the underlying characteristics of various alternative investments.
A clearer view into investment performance aids investors in navigating changing market conditions and adjusting allocations as needed. It also enables better forecasting and allocations based on future expectations. This brings the goal of a continuously optimized portfolio into sharper view.
An Integrated Portfolio Management Solution for Alternatives Investors
Dynamo creates a powerful central connection between all your critical data sources. Read more about how to establish a tech-powered hub to manage your alternative asset portfolio.
Matt Keller is 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. Connect with Matt on LinkedIn.