Eyes around the world are watching to see the outcome of the UK’s exit from the EU. With the March 29, 2019 Leave date looming, LPs in the UK and Europe face an increasingly volatile market. Britain and the EU have yet to come to an agreement on Brexit terms, which casts a shadow on the alternative investment landscape in both regions, and the rest of the world.
Investors, fund managers, shareholders, advisors, analysts, and economists have laid out a series of predictions about possible outcomes of Brexit’s impact on the market, summarized here, but investing in most alternative assets becomes challenging when there is no clear sign as to which way the deal will play out. Economists suggest that a “Hard Brexit”, in which Britain cuts all ties with the EU and withdraws membership from the EU single market, would be highly damaging to the economy; due to increased cost of imported goods, consumer spending is likely to be squeezed. Conversely, a “Soft Brexit”, in which Britain would remain aligned with the EU, is the supposed least damaging path. But what happens if no deal is reached by the scheduled Leave date? Britain exiting the EU without a deal is predicted by some to be the worst-case scenario. The Bank of England suggests this would shrink the UK economy by as much as 8% in one year, decrease domestic house prices by up to a third, and damage currency and stocks. On the other hand, postponing Britain’s exit until a deal can be reached plunges investors into an even more erratic and uncertain marketplace.
Overall, Brexit has the potential to lower returns from both UK and European alternative investments regardless of which path it takes. Despite this instability, alternative assets remain increasingly attractive to institutional investors, increasing competition for attractive investment opportunities, and the time and resources necessary to source them.
During this time, it is imperative that investors have a comprehensive understanding of their portfolio holdings, in order to continue making informed investment decisions. For investors with diverse portfolios spanning multiple asset classes, evaluating exposures and risk factors of each underlying holding becomes taxing and complicated. Employing a purpose-built system to capture, analyze, and report on data makes running a multi-asset class portfolio more manageable, even in a volatile market.
Dynamo Software is a cloud-based alternative assets solutions provider that specializes in multi-asset class portfolio management, data capture and exposure reporting. With 20 years of experience in the industry, Dynamo has a deep understanding of alternative investing challenges during times of turbulence, and has taken steps to improve investors’ insights into their portfolios’ and underlying holdings. Dynamo’s product suite and related services provide investors deep transparency into their portfolio performance.
Dynamo is integrated with several leading third-party data providers, including Preqin and Bloomberg. Investors can automatically pull data from these sources into their Dynamo databases and tag information to the appropriate entities. With Brexit outcomes undecided, this immediate and automatic access to information is unparalleled in value. With this capability, investors and analysts can conduct informed, predictive analysis and due diligence with the most up-to-date, high quality data without sinking hours of valuable time into manual data collection; while also storing data in a centralized, easily accessible location.
Investors can track portfolio data across all asset classes and entities, from top level holdings to underlying securities. Consolidating all information into a single system allows investment teams to assess and report on the status of an entire portfolio in one place.
In November 2017, Dynamo acquired HoldingsInsight, a data capture and normalization service. Investors can leverage HoldingsInsight to gain deep transparency into how Brexit may affect their portfolio performance. HoldingsInsight provides detailed exposure reporting, as well as valuations and liquidity, and allows users to group and sort data by geography, sector, and industry. A global event like Brexit has the potential to disrupt different sectors and geographic regions in different ways; HoldingsInsight takes the guessing out of the investment process, and allows investors to cross reference exposures by any combination of vectors, for example: by sector, region, and strategy.
In a period of high volatility and competition, extra hands are often needed to ensure the proper research synthesis and analysis is done to mitigate risk. A pending event like Brexit, however, which could have potentially detrimental returns, may make it difficult to recruit new staff to fulfill these crucial roles. With Dynamo, automating your data collection, business processes, and reporting, your investment team can focus on core, value-added activities while your processes are handled in the background. With its SaaS architecture and comprehensive mobile app, Dynamo provides investors with on-demand access to reports and time-sensitive information, so they can mitigate risk from the office or the road.
Dynamo also offers predictive PE cash-flow modeling and what-if exposure forecasting, allowing investors to simulate how their portfolios will be impacted with allocation decisions. With four viable Brexit outcomes, investors need the clearest possible understanding of where their portfolios stand today, how their portfolios could be impacted, and have the flexibility to assess areas for improvement and implement changes in operating model or asset allocation, no matter which direction the Brexit agreement moves.