Against a backdrop of challenges and opportunities, many alternative managers are asking: where do we go from here?
There is no denying the economic, cost, and revenue headwinds managers continue to face. However, meeting those challenges means many managers are moving in a new direction.
Today, we see a growing number of managers diversifying into new strategies, such as non-bank lending. As more managers diversify into this area, asset classes like asset-based lending, credit, and direct lending expand.
As firms adjust their course, they are reevaluating the central role operations play in making these new strategies successful. That evaluation must include an analysis of how outsourcing, managed services, and investment technology can help overcome obstacles, capture opportunities, and empower their firms to come out ahead.
Leveraging Asset Class Expansion to Find New Growth Opportunities
As firms seek to justify fees and find opportunities to grow, the range of investments they are considering has expanded, particularly within private credit. Yet, capitalizing on these opportunities requires more than investment acumen.
Given strong market fundamentals and the rapid growth of private credit over the last two decades, it’s no surprise it continues to attract a diverse group of investors. According to Hedgeweek, Preqin data puts global private credit AUM at an all-time high of $1.6 trillion, and many observers assert that that number could double in the next five years[1].
Key to private credit’s attraction is its ability to provide investors with a higher-yield alternative to public debt markets, but it entails accounting and operational complexity. Often, firms are forced to add technical solutions to process these new asset classes – solutions that often don’t connect seamlessly to other parts of the firm's technology stack.
All of this makes it clear why the right operational underpinnings are at the forefront of an alternative firm’s success. Managers are unable to succeed in investing in private credit or any strategy without technology that supports and streamlines the process, allowing them to fully capitalize on the opportunities afforded by these asset classes.
Outsourcing to Focus on What Matters
As funds seek to gain a competitive advantage, many start by outsourcing parts of their operations.
A recent survey by Hedgeweek reports around 70 percent of funds outsource a “meaningful proportion” of their middle office, around 80 percent do so for their back office, and over a third outsource a “meaningful proportion” of their front office[2].
More and more of the hedge funds we work with choose to outsource routine functions, such as cash- and month-end- reconciliations, event processing, and trade matching. Increasingly, these funds also outsource applications, including tasks like system monitoring and infrastructure management.
Outsourcing gives these funds access to a team of experts who have solved problems with dozens of like-minded firms. This knowledgeable resource is critical in today’s job market, where finding experienced people to manage the complexities of a hedge fund is still difficult despite stabilization in other parts of the job market.
Working with an experienced services team to manage operational aspects of the firm also frees up valuable time for the investment team to focus on true differentiators and empowers managers to focus on the core competencies that grow their funds.
Putting Operations Front and Center with Investment Technology and Managed Services
As efficient operations become even more critical to success in the alternative management market, choosing the right vendor is more important than ever.
More than 1,300 alternative firms rely on technology, managed services, and support from SS&C Advent and Eze to run successful operations.
Users leverage the functionality of SS&C technology to configure seamless solutions with custom-feeling workflows that can expand with the necessary components as a firm’s needs and range of asset classes grow.
To learn more about how to use your firm’s operations as a competitive advantage, download our new State of the Investment Industry eBook.
[1] Hedgeweek Insights Report. (2024). Private Credit: Key Trends, Technology, and Future Trajectory. Retrieved from https://www.hedgeweek.com/private-credit-key-trends-technology-and-future-trajectory/
[2] LoCascio, B. (2023, July 18). What's Driving the Increase in Outsourcing for Hedge Fund Firms?. Retrieved from https://www.ssctech.com/blog/whats-driving-the-increase-in-outsourcing-for-hedge-fund-firms
