‘Dynamo Frontline Insight Report’ Reveals Trends in Diversification,
Fees, and Tech Spend for Next 12 Months, Uncovers Where GPs and LPs Align & Diverge
February 16, 2023 – Boston, Mass. – Alternative investments FinTech Dynamo Software, in partnership with Alterio Partners, today released the results from a new survey, Trends, Challenges, & Insights from Leading General Partners (GPs). During the months of December 2022 and January 2023, Dynamo and Alterio surveyed global decision-makers across the GP landscape. The findings come on the heels of Dynamo’s October 2022 survey of Limited Partners (LPs) and asset allocators.
The GP research, contextualized in the Dynamo Frontline Insight Report, uncovered several noteworthy attitudes, predictions, and strategic plans among firms, such as private equity (PE), venture capital (VC), hedge funds, and real estate, along with other asset managers. Interestingly, the survey also highlighted a few noteworthy disparities in mindset between GPs and LPs.
Although mindful of expected market downturns, GPs demonstrated confidence in their existing investment strategies with 68 percent saying they will not further diversify their portfolios in 2023.
Notably, 25 percent of GPs polled said they expect investors to reduce allocation to alternatives. However, LPs polled by Dynamo and Northfield Information Services in October 2022 did not indicate plans to pull back from alternatives. In fact, 96 percent said they would either increase (55%) or maintain (41%) their allocation to alternatives in 2023.
A slight misalignment in which global regions are home to investment opportunities was also detected in the survey. Whereas just 12 percent of LPs are looking to deploy capital primarily in Asia, just 4 percent of GPs said the same.
Based on the Dynamo-Alterio findings, GPs are likely to focus on adjustments to borrowed capital, asset holding periods, and exit scenarios over the next 12 months. Nearly 30 percent (28%) cited holding periods and exit strategies as the aspects of business most impacted by the current global economy. Another 23 percent said the biggest impact of the economy is difficulty finding leverage in deal structuring.
Management Fees & Business Priorities
A strong majority of GPs (88%) said they will not change their firm’s management fee structures in the next 12 months. Only five percent intend to increase fees; seven percent will decrease them.
As the industry has experienced in past recessions, a reduction in income is often accompanied by a renewed commitment to efficiency. Today, much of that is driven by technology and automation. This is underscored in the GP ranking of priorities for 2023 in which “removing manual data tasks and introducing automated workflows” was ranked second only to “protecting and maximizing the value of the portfolio.” Rounding out the top three priorities was another efficiency-focused initiative: “Creating new strategies to optimize team productivity.”
Further evidence that GPs are leaning into efficiencies is revealed in their plans for technology spend over the next 12 months. Dynamo-Alterio survey respondents appear to consider their 2023 technology budgets untouchable. A full 94 percent said their technology budgets would either increase (45%) or stay the same (49%). Dynamo found a similar sentiment among LPs in its October 2022 survey.
There is, however, a slight difference in prioritization between GP and LP leaders as they approach FinTech integration. GPs ranked “overall cost” as one of the top-3 most important aspects of implementing technology. On the other hand, cost did not rank within LPs’ top 3. Rather, “API compatibility” rounded out LPs’ top priorities for FinTech implementation.
“The FinTech space has evolved,” explained Dynamo VP of Product Steve Tobio. “GPs have moved into a world where they need just as much flexibility and synchronization of their data as LPs. Today’s investors demand more from GPs in terms of reporting, which increases the need for organization among fund managers. GPs need to own their entire data set, which may be housed in multiple systems and locations. It’s up to them to invest in a flexible application or maintain a data warehouse to take advantage of the vast and growing number of APIs available to them through FinTech software solutions.”
Increased Focus on Understanding LP and Asset Allocator Strategy
Trends, Challenges, & Insights from Leading GPs is the second in a new series of alternative investment research reports from Dynamo. According to CEO Hank Boughner, the research series is a critical initiative for keeping the Dynamo team in lockstep with the power users of its end-to-end software.
“Taking the temperature of GPs so closely on the heels of our LP survey shined a light on otherwise hidden disparities in mindset,” said Boughner. “Insights like these enable our consultants to bring highly relevant FinTech consultation to the table for all stakeholders across the alternative investment ecosystem.”
The complete “Dynamo Frontline Insight Report: Trends, Challenges, & Insights from Leading GPs” can be accessed here.
About Dynamo Software, Inc.
Dynamo Software’s mission is to be the leading global, end-to-end cloud software platform for the alternatives ecosystem, serving the information sharing and analytical data needs of our constituents. Since 1998, the company has been providing industry-tailored, highly-configurable investment management, reporting, and data management cloud software solutions to the global alternative investment industry. Dynamo’s cloud-based solutions serve the private investment landscape including: private equity and venture capital funds, real estate investment firms, infrastructure, hedge funds, endowments, pensions, foundations, prime brokers, fund of funds, family offices, and fund administrators. The Dynamo™ platform has improved the productivity across the alternatives ecosystem, including CRM, fundraising, deal management, research management, investor servicing, portfolio management, and compliance teams worldwide. Dynamo has a global footprint with operations across North America, EMEA, APAC, and UAE. For more information, please visit DynamoSoftware.com.
About ALTERIO Partners
Alterio Partners is a European consulting firm focused on delivering operational transformation and enabling technology solutions to the alternative investment industry. The company assists firms with organizational transformation and efficiency projects by addressing four levers of performance improvement: processes, technology, resources and governance. For more information, please visit alteriopartners.com.