Today, the alternative investments industry stands at a technological crossroads. Fund managers face mounting pressure to deliver superior returns while controlling operational costs.
Truth is, the promise of automation is widely acknowledged, and we can all agree it improves efficiency in modern fund operations. But, at what financial imperative? A recent KPMG survey reports that over 30% still rely on spreadsheets like Excel for critical portfolio management functions.
Are there tangible economic benefits that strategic automation delivers to fund operations? Let’s explore the specifics.
What is Automation in Fund Operations?
Automation in fund operations is the use of technology to streamline, simplify, and optimize the processes involved in managing investment funds.
Traditionally, fund managers and administrators manually perform routine tasks like compliance checks, trade processing, investor onboarding, etc.
Today, key automation components in fund reporting include robotic Process Automation (RPA), artificial intelligence (AI), and workflow orchestration. These reduce human errors, automate repetitive tasks, make it easy to scale, and improve accuracy.
Here are some common fund operation processes that are suitable for fund automation:
- • NAV (Net Asset Value) calculations: Automation tools can quickly and accurately calculate Net Asset Value by aggregating data from multiple sources. They integrate with accounting platforms for accurate real-time updates.
- • Reconciliation: RPA and AI accelerate the matching of trades, positions, and cash transactions. They automatically compare and verify transactions between internal systems and external custodians, flagging any mismatches in minutes.
- • Reporting and compliance: Automated compliance reporting tools collect, validate, and integrate data from multiple sources. They generate standardized reports and provide real-time dashboards and alerts for audit readiness and regulatory compliance.
- • Investor communications: Personalized investor updates, statements, and performance reports can be generated and distributed automatically.
Automation of fund operations is driven by the need for efficiency, accuracy, scalability and compliance in the industry.
Key Areas Where Automation Delivers ROI
In fund operations, the automation return on investments (ROI) can be measured in cost savings, productivity gains, error reduction, and improved operational efficiency.
Here are the key areas you’ll likely experience ROI:
1. Investor Onboarding & KYC
Traditionally, onboarding and KYC (Know Your Customer) can be slow, lengthy, and error-prone. Automation results in faster verification, compliance, and documentation, benefiting both firms and investors.
Automation through tools like digital identity verification, eKYC/AML screening, and electronic signatures reduce the onboarding time from days to minutes. This results in faster access to capital.
Beyond compliance, automation improves accuracy and provides a great investor experience.
2. NAV Calculation and Fund Accounting
Traditionally, NAV calculation and fund accounting are labor-intensive, error-prone processes. The manual reconciliation involves verifying financial records across different systems, custodians, and counterparties.
Errors in fund accounting, such as incorrect pricing, missed accruals, or misclassified assets, can lead to misstated NAVs. This can result in regulatory scrutiny, reputational damage, and investor compensation.
Automation tools can ingest data feeds from custodians, fund administrators, and internal systems, then perform real-time reconciliation using predefined rules. This eliminates the need for human intervention in most cases.
Fund automation systems use standardized workflows, validation checks, and audit trails to lower error rates and catch anomalies early.
3. Reporting & Compliance
Fund reporting is complex, high-stakes, and time-sensitive. From preparing investor statements to meeting regulatory requirements like AIFMD, FATCA, or CRS, fund managers deal with many data sources and rules from different regions.
On average, fund management businesses spend about 25% of their revenue on compliance costs, with some spending over 50%. A KPMG study reports that fund managers absorb 76-100% of compliance costs themselves rather than passing them on to the funds.
Automation transforms how firms approach the compliance burden:
• Cost reduction: Every hour spent manually consolidating reports or checking for compliance errors is a cost. Automation lowers the need for human intervention, reducing the operational costs.
• Accuracy and standardization: Machine learning and AI tools integrate directly with portfolio management systems to ensure consistent data.
• Operational efficiency: Data from fund accounting systems, CRM tools, and legal documentation flows seamlessly between systems, and predefined reporting templates allow for rapid generation of investor-ready reports
• Real-time monitoring and alerts: Compliance and reporting functions shift from reactive to proactive. For example, if a capital call exceeds a certain threshold or if an investor’s tax residency status changes, the system generates automatic alerts.
• Audit readiness: You create a searchable audit trail across every step of the reporting process. Every change, like NAV calculations or communication, is logged, making it easier for auditors to trace data back to its sources.
• Scalability: Automated systems adapt to more demands without the need for more investment in operations.
4. Workflow Management and Communication
Challenges like fragmented systems and manual reporting can be significantly reduced by automation.
Here’s how automation technologies bring measurable improvements:
• Streamlined workflow management: You automate repetitive tasks, monitor tasks across teams and systems in real time, and ensure standardized processes.
• Better communication: Automation creates a centralized data access, making it easier for teams to access and share accurate information. Stakeholders receive automated notifications and alerts, making collaboration better.
Real Financial ROI of Automation in Fund Operations
Automation in fund management is not just a tech upgrade. Since most mid-sized asset managers spend a considerable portion of their budget on manual processes, automation adoption delivers measurable financial and non-financial gains.
These include:
•Cost savings: A Deloitte study found that fund operations that implement automation typically reduce operating expenses by 25-40%. Cost savings result from the reduced need for manual labor in repetitive tasks like data entry, reconciliations, and compliance reporting.
• Revenue gains: Automated investor onboarding reduces the process from weeks to days. This enables funds to bring in new assets under management (AUM) more quickly. Additionally, funds can scale their investor base more rapidly, directly impacting revenue growth velocity.
• Time savings: Automation frees up staff from manual, repetitive tasks. They can focus on higher-value activities such as analysis and better client servicing. After automation, asset managers spent 40% more time on important tasks like decision support.
• Improved accuracy: Manual processing error rates in fund operations average 2-5%, while automated systems achieve 99.9% accuracy. Accuracy eliminates potential regulatory penalties, adding to profitability.
Beyond Cost Savings in Alternative Asset Management
While financial ROI remains a key driver for automation in alternative asset management, the true value goes beyond mere cost savings. Automation empowers your firm to innovate and respond with greater agility to market changes. Even with the complex investment landscape, you have a competitive edge to adapt.
Long term solutions like RAISE can unlock your firm’s full operational potential. RAISE automates routine, time-consuming processes such as investor reporting, data aggregation, and compliance tracking. You can access data in real-time on fund performance, operational metrics and even investor communications.
The platform simplifies all stakeholder communications. RAISE comes with built-in controls and audit trails that help you with compliance and audit readiness.
