Analytical Insights is a quarterly publication providing clients with investment information that can be used in the process of monitoring global assets.
Managing Director, Head of Global Risk Solutions
BNY Mellon Asset Servicing
Institutional investors have been allocating significant percentages of their assets in Private Investments for decades. The allocations range anywhere from 2 fund investments with $100,000's in commitments to in excess of 1,000 fund investments with more than $1 billion in Private Investment commitments for an individual institutional client. The Private Wealth/Family Office has been an increasingly significant allocator to Private Investments in recent years.
As the number of commitments to Private Investments continues to increase and relationships are established with the General Partners, allocators must develop robust processes to capture the myriad of data points required for comprehensive analysis. Portfolio analysis is key to understanding the complex nature of the valuations for each fund investment. Investment offices are often tasked with measuring exposures across the entire investment program. To analyze concentration and performance attribution, analysis is required to “look-through” the fund investment at the portfolio company holdings within each fund. As any allocator to the Private Investment asset class can attest, this is a labor intensive asset class and extremely document centric. Due to the manual nature of the asset class, staffing constraints are magnified related to the tracking of these investments. Often overheard is the comment “20% of my assets are consuming 80% of my time.” With allocations to this asset class rising from “20% of my assets” to more than 50% for some allocators – rendering these assets as ‘alternative’ in name only – the underlying message is only compounded.
As allocations to Private Investments have risen over the past several years, the scrutiny and regulation around these assets have also increased. Private Investments bring a significant administrative burden to the investment process. Data management, cash flow processes, document management, audit and reconciliations are all functions that are now a routine part of the investment process for this complex asset class.
Since the financial crisis of 2008-2009, there has been a requirement for Private Investment allocators to access comprehensive data. Long gone are the days of monitoring simple metrics like market values, realized and unrealized gains or losses, and performance returns. Transparency is vital. Understanding the sector, industry, and geographic exposures of underlying companies of the Private Investment funds is now mainstream, whereas, a few years ago, this was only requested of publicly traded securities. Understanding your exposures to geographic locations that may be impacted by political unrest or natural disasters is extremely important but not often easily accessible for private investments. Allocators are looking for better benchmark data and the ability to compare fund managers to other like fund managers based on multiple data points, such as vintage year, asset class, sub-asset class, geographic location etc.
With most private investments, general partners do not provide daily or monthly valuations and the quarterly valuations are lagged usually 2 or 3 months after their valuation data. There has been an increasing requirement to calculate a Non-Lagged Performance return to use in consolidated reporting across all asset classes.
Global Risk Solutions is a leader in supporting these unique assets, working with over 600 clients with over 27,000 partnerships and administers $350 billion in private investment partnerships. Our dedicated team of professionals is focused on delivering private investment services leveraging our collective experience in set-up, administration, accounting, enhanced performance calculations, and analysis of these assets.
Debra A. Baker