Jim Warren has a bird’s eye view from which to observe the pain points between investors and their asset managers. Warren is the SVP, Head of Solutions and Platforms, Global Wealth Management Services at SEI, a global leader in providing new infrastructure platforms, solutions, and services to investors and wealth management firms. He recently spoke with II to share what he sees as the ways alternative investment firms can gain a competitive advantage.
In your conversations with alternative investment firms, where do they see themselves as needing the most help?
Investment firms focus most of their effort and spend on the investment process – everything from research to security selection to ongoing due diligence – as they should. Historically, they haven’t really focused as much of their time and effort on the investors themselves – and that is a shortcoming they are increasingly recognizing.
Where do you see the opportunity for them to improve the investor experience?
To improve the investor experience overall, they need to focus on the aggregation of data across multiple vendors and throughout the firm itself, fund administration activities, and any operational outsourcing. Drilling down, there’s a big opportunity in hyper-focusing on investor data management from onboarding, to aggregation, to the racking and stacking of data, and delivering it back to the investor. This is the underserved and underutilized part of the business. That could become particularly important to firms especially now, as they tend to realize how much more important client relationships are when there’s any kind of economic downturn or extreme market volatility.
And, of course, investor expectations change, too – and managers need to keep up.
I agree. Even if you just look back to the global financial crisis of 2007-2008, you can see the evolution of investor expectations. That’s when regulatory processes and institutional investor concerns over transparency really started to drive the requirements around managing data on investors and providing more transparency into investments. More recently, you’ve had firms looking at different ways they can increase assets under management by creating more opportunities across different types of investors – maybe going down from just focusing on large institutional firms and looking a little bit more at family offices and individual investors and how you can distribute to them. That requires a strategy around what your distribution model is going to be. To establish that, you need to look at everything from how you handle research and analytics to the actual underlying investments, vehicle structure, and terms and conditions.
If managers succeed in generating new opportunities outside of their typical universe of clients, would that place greater emphasis on the investor onboarding process?
Absolutely. We’ve invested heavily in creating a digital onboarding process to make the experience of starting a new relationship better for the investor as well as the manager. It decreases the time that it takes to onboard so that assets can be invested sooner. At the same time, a digital process kicks in regarding how investors interact with their funds going forward. There is consistent, timely interaction between the manager and the investor, and that helps forge a stronger relationship.
What makes your onboarding process different?
Traditional hedge fund subscription documents, for example, can be up to 40-60 pages long. It’s a laborious process to fill them out, mail them, and have someone review them only to find you incorrectly populated some data or made simple mistakes answering questions. Back it comes to you to fix, and back you send it, and so on. For the investor, it can be a very slow going before their assets are actually invested, and even then, the information flow about the investments can be agonizingly slow. For the manager, it can take a significant amount of time to onboard just one investor – time that could be used for more valuable, additive activities.
At SEI, we recognized that we could remove the actual paperwork by digitizing the document in a way that allows for flexibility, because every sub doc is different. In what we call SEI Trade, we use rules-based capabilities, where we can take a hedge fund’s sub doc and turn it into an easy online experience, populating only the necessary information and efficiently processing it. The built-in rules and workflow prompt review and approval by all necessary participants, including legal and investor relations at the fund complex. So, we’ve not only improved the experience, but we’ve also put controls in place that streamline and improve the quality of the processing. What used to take months can now be done in weeks, if not days.
You’ve talked about the relationship between managers and investors. How has the dashboard experience changed for both?
About 15 years ago we recognized a need to give our clients online access to their data, rather than just sending them hard copy documents and data stubs. At the time, we built out what we called our Manager Dashboard, which was essentially a report writing capability that took the data we were processing for our clients and delivered it online in an actionable way. Around the same time, we started offering an Investor Dashboard, which initially was simply a secure document portal. For example, the statement an investor normally would have received in the mail could be viewed by logging into the highly secure portal.
Over time, we heard from managers that they wanted to send investors graphs, charts, underlying data, and other information, and it became more of true dashboard. Managers wanted to drill deeper into the data and create reports on the fly, and investors wanted transparency in digital form with visuals in charts and graphs. From our perspective, what managers and investors wanted all pointed to the same data and document sets. That’s really important in creating consistency and control – a consistent set of information is delivered, but then the manager has the ability to control what data they expose to the investors. You could describe what the manager and investor each see on their dashboard as role-based views. For example, if something’s an estimate, a manager might not want to show that to an investor. In the alternatives space in particular, the manager might not provide transparency down to the level of the actual security. They might just tell investors the sectors, industries, asset classes, and countries that they’re invested in – that’s just the nature of that business.
SEI has been a leader in financial technology-driven solutions for a long time. Do you see more managers looking to outsource their technology needs rather than try to keep up with the cost of the latest innovations?
I think it’s more about focus and intent – what technology can we can take off their plates so they can focus on the more value-based portions of their job. On the regulatory side, for example, we can do a lot of the processing so that the manager just has to review the output and weigh in on anything that might affect the firm. Once a manager is comfortable with an outsource partner, they often start to consider what else they can delegate so their firm can focus on its core functions and competencies – and while they may outsource the underlying work to a trusted partner, they are still able to maintain ultimate control and authority. We don’t talk about it like we’re smarter than our clients. We might say, “We do this for 250 clients who run businesses similar to yours. These are activities and processes that we see working effectively and efficiently – why would you want to try to figure out how to do something a different way on your own? Your strength and market advantage is making investment decisions and constructing portfolios. Our strength is based on a vehicle and asset class agnostic platform created to handle all of the things that detract from your focus on your core strength.”
How important is customization to managers?
We could not have grown our business without customizable solutions. “Any color as long as it’s black” doesn’t work well in the alts space. Most of our clients want a customizable look and feel, just like the way they interact with their investors. They feel strongly about the format and look of the reports they have developed internally to manage their day-to-day business, and they want to maintain or improve upon that, not be forced to accept something that’s rigid and one-size-fits-all. We’ve built out our solutions flexibly enough to allow for that. And having been at this for decades, our capabilities have evolved in step with industry tech and business intelligence tools. There are business intelligence tools that allow us to help managers deliver deeper details and information to their clients in customizable way, too. Due to the length of time we’ve been servicing this market and the 500-plus clients we work with, we have a lot of experience when it comes to best practices, and I think our clients appreciate and perceive a strong benefit when we share our perspective. It doesn’t mean we’re going to dictate to them, or not work with them to do what they know helps them stand out in the market, but they do see a value in our broad perspective.
What does a more advanced level of customization look like?
Allow me to use an example. APIs – application programming interfaces – are how our internal systems at SEI talk to each other. We thought there might be some value in our clients being exposed to these integration points if they wished to, say, create their own unique and customized web application or an internally built trading system. They can leverage the same type of connection points that we use internally or that we use for other clients. There is limitless flexibility and customization for clients who leverage this – it’s still relatively new and in the implementation stage across all of our client base, but it has been very well received. We’ve also seen some interesting connections between ourselves and third parties open up as a result.
With all the capabilities we’ve been discussing, how do you think the investment firm of the future will take shape?
Everything we’ve talked about is enabling technology, so I think the investment firm of the future will see people doing increasingly higher value work. If you can reduce the time people spend reconciling information from one system to the next, or one source to the next, and instead just manage exceptions, you’ve changed their workday and the type of work that they can do. That applies to someone in the investor servicing group for an alternative fund manager, too. If they’re spending less time reading and verifying information in a sub doc, or typing it into a system, or creating a report to send to an investor, and more time learning about investors’ proclivities and behavior, you’re really changing their job. You’re empowering them to do higher level analysis and make higher level decisions.
One thing we’ve noticed over time is that our platform grows and expands as investment strategies, capabilities, and market environments do the same. As we come out of the Covid-19 crisis, we will likely see some interesting things that change how investors invest, and what they’re investing in. There will probably be more innovation on both the investment side and the processing side around private equity, private debt, real estate, and other alternatives. Leveraging operational and technological flexibility will be critical, for sure.
Learn more about SEI’s order processing manager and investor document tracking.
