Changing family office approaches

With all the developments (and noise) happening in the AI ​​and technology space, it can be difficult to identify the signals you need to make solid business decisions, and first principles often It may be helpful to go back to In a recent webinar, several private markets industry experts discussed how family offices are transitioning their approach to private markets, what it takes to make this transition, and what makes this possible. We explored technology solutions for

One thing that has become clear is that the approach that family offices can and are approaching private market investing is changing. By using new technology, family offices are not only optimizing their current investment strategies, but also adapting to new market conditions.

New technologies such as artificial intelligence that provide processing power to streamline time-consuming tasks, such as automated extraction of data points from documents and liquidity solutions that go beyond that, are dramatically changing how family offices are accessed and engaged. That’s likely to change. In the private market.

The role of technology in family offices

The disruption caused by the coronavirus disease (COVID-19) has caused a chill in the private market in recent years, but there are signs that this is starting to thaw.

As private companies take longer to IPO and institutional investors looking for huge profits in a short period of time move to the public markets, family offices are considering investing in the private market with a long-term vision in mind. He is attracting attention as an ideal partner. Marriage with a shift to impact-based and purpose-driven investing can be a happy endeavor.

“Family offices typically have very long time horizons and are very well positioned to capture the illiquidity premium.” Peter Clancy, Head of Family Office at Canoe Intelligence, put it aptly:

As family offices have grown around the world, technology that allows access to private markets as an asset class has quickly capitalized on new opportunities. Much of this is evidenced by platforms such as iCapital allowing smaller family offices to participate in this asset class.

In fact, just this week, iCapital announced the acquisition of Mirador, a services company that provides data aggregation and financial reporting across both traditional and alternative investments. With this move, iCapital will expand its service capabilities to specifically target clients in the family office space, among other wealth management profiles.

Data transparency and solutions

With the focus on iCapital’s acquisition of Mirador, there is a need for greater transparency in private market investments, and enhanced technologies such as machine learning and artificial intelligence can help achieve this.

Among family office considerations regarding private market opportunities, there is a particular emphasis on efficient valuations, transaction notifications, and transparency in holdings and exposures. Technology increases operational efficiency and streamlines document management. Additionally, new advances in machine learning enable automation of routine tasks and faster data extraction. New technology gives family offices access to clearer data in less time.

The space is dominated by major vendors, some offering solutions such as machine learning technology for document collection and data extraction, others leveraging AI to manage financial workflows, etc. There are also new entrants.

The challenge remains to change the mindset of private market issuers, reduce information opacity, and take advantage of these opportunities to enhance access to investment by family offices. Brett Mock, Head of Global Capital Markets at Nasdaq Private Markets, said during the webinar: “Transparency only makes the market better.”

Liquidity and exit strategy

“Liquidity is clearly the biggest risk in this space.” – added David Ryan, Partner at Zeal & Partners. And to back this up, in Simple’s spot poll of family offices, 25% of respondents similarly said liquidity and exits were their biggest challenge when investing in private markets.

Depending on liquidity requirements, risk appetite, and strategic asset allocation, family offices must balance illiquid investments with liquid assets across asset classes. An important consideration for family offices is to have a clear strategy for asset exit.

Fortunately, new technologies that allow access to secondary markets provide additional exit options and address liquidity issues. As private markets mature and become more digital, distributed ledger and blockchain technology will help – Bain & Company predicts that as early as 2020 traditional assets will be represented on blockchain and more He says the future of effective management may not be far away.

Is technology really a silver bullet?

The importance of cyber and data security as a counter to the development of technologies such as AI, which is expected to disrupt the intelligence domain within civilian markets, particularly in extracting data and enhancing decision-making processes. is increasing.

New territory, new risks

Most important to family offices is the ability to securely access and share data about sensitive private market investments.

Cybersecurity solutions are key for family offices. Choosing the right vendor is important, considering that each family office is unique and therefore has a different experience implementing new technology.

The true maxims expressed in the webinar are simply: Does everything need to be automated?

Family offices must carefully select the right vendors, secure the right partnerships, and set policies regarding the use of new technologies in order to cautiously enter the most relevant private market investment opportunities. We need a proactive approach to navigating the private market while embracing innovation for long-term success.