FinTech Meeting Foundation &Endowment Needs for Management of External Investments

Posted on October 28, 2016 by Jesse Gurevich

By Josh Smith

Institutional Investors are increasingly calling for better transparency and high quality data from alternative investments and private funds.  Financial technology is offering solutions—multi-asset class performance and risk reporting with more exacting analysis and deeper detail than previously available.

In 2008, shortly after joining the outsourced chief investment officer (OCIO) firm Investure in Charlottesville, Va., I saw multi-asset investment strategies taking root not only within foundations and endowments, but family offices and other institutional investors.  The financial crisis really helped organizations identify the need for consolidated, holistic multi-asset class portfolio management and reporting.

The aim of multi-asset class investing—which continues to gain wider acceptance in the wake of the global financial crisis — is to achieve the broadest possible asset exposure that takes advantage of not just statistical diversification, but the long term horizons and inefficiencies that exist in different strategies, assets and markets at different times across the globe - hopefully resulting in overall return goals and downside risk mitigation.  But broad exposure requires the nimbleness to extract detailed data from any strategy, including hedge funds, private equity and venture capital. Moreover, regulatory requirements and board relationships for many of these firms effectively require a deeper understanding of what you are invested in.

Managing the sheer volume of information and keeping pace with multi-asset strategies is a very complicated process.  Performing portfolio analysis and aggregating data into consolidated metrics is even more complex.  Financial reporting and portfolio management in particular have been hindered by legacy systems and an adherence to a strict accounting paradigm.  Throughout my career, I have observed these institutions and family offices make do with a costly concoction of “one size fits all” technologies that ended up not satisfying a single aspect of what it was supposed to accomplish.  Additionally, multi-asset reporting is beholden to Microsoft Excel not only for visualization tools and detailed analysis but for its role as a de facto database, as exists in nearly all of the investment management industry.  As regulatory and other demands on investment offices surface, Excel cannot continue to be a store of information and data. A truly flexible and dynamic system is needed that adheres to the demands and unique requirements of each and every investment office it serves.

To help institutional investors meet the challenges of multi-asset strategies and regulatory requirements web-based portfolio management and reporting applications exist to enable a holistic, detailed view of every portfolio and holding, updating information daily and constantly aggregating and calculating risk, performance, exposure and many more attributes.  Their goal is to keep the many different types of institutional and family office users as up-to-date as possible with information that can be used to answer questions based on up to the minute data.

In a recent study by consultant NEPC, transparency ranked as a top concern for foundations and endowments.  In addition to portfolio and transaction transparency, financial technology innovations can also help investors verify and compare a variety of statistics.  Institutional investors and family offices no longer sit back and accept outdated information, performance and fees as part of the investment relationship. A paradigm shift is occurring and the in-tuned, active management of many of our clients is only increasing. Solid systems and analytical capabilities are critical to maintaining and sustaining this active management and competitive advantage.

Josh Smith is co-founder and CEO of Solovis, with offices in Charlottesville, Virginia, and Dallas, Texas.

Tags: FinTech, Foundations, Josh_Smith, Endowments, Publications, Solovis

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