2024 Trends, Themes, and Predictions: Expanding Operating Models for Private Markets

Angela Centeno, CPA

Director

Angela Centeno joined Cutter Associates in 2015, bringing more than 20 years of experience in financial services. Prior to Cutter, Angela worked for The Northern Trust Company in multiple roles managing enterprise market data, investment operations outsourcing, vendor relationships, and custodian relationships. She previously held senior positions in operations management, project management, data management, and solutions implementation.

Angela earned a bachelor of science in accounting and a bachelor of science in business administration from the University of Kansas, as well as an MBA in finance from DePaul University. She is a registered CPA.

Recent research assignments and publications include the following:

Asset Management Trends: 2022 and Beyond
Market Data Administration
An Introduction to Vendor Management
Best Practices for Developing a Vendor Management Program
Vendor Management: Trends ─ And the Tools that Can Help
Data Cataloging Tools
Rethinking Research Management
Alternative Investments
Managing Benchmark and Index Data

Chanelle Crabtree

Consulting Principal – Investment Operations and Outsourcing, Australia

Chanelle Crabtree has extensive experience consulting for the asset management industry in Australia for the past 20 years. Chanelle has considerable knowledge and expertise in investment management, outsourcing, and the development of operational models that support the investment management lifecycle. Chanelle leads Cutter Associates’ Investment Operations and Outsourcing practice, and oversees Cutter’s Australia office. She has decades of experience working for investment management firms, custodians, and consulting firms, in roles that included middle-/back-office operational, business analyst, project management, consulting, and senior management. She has a deep understanding of investment management, covering the operational, governance, and system requirements to support all types of clients, products, and asset classes.

A former Director at Deloitte, Chanelle led key engagements, particularly for complex clients with diverse asset classes, covering target operating model design, sourcing, and implementation. Prior to Deloitte, Chanelle was a Lead Consultant at Morse Consulting Pty Limited, where she led various engagements that covered target operating model design, sourcing of custodians/systems, and implementations with investment managers and superannuation clients.

Shankar Subramanian

Consulting Principal – Public Funds, Compliance and Risk Management

Shankar Subramanian has over 25 years of industry experience in investment management and technology solutions. Shankar has a deep understanding of investment data management, portfolio management, risk management, investment accounting, and alternative investments. At Cutter Associates, he heads the Risk and Compliance practice, helping client with investment risk management, and asset allocation, as well as providing support for compliance with consulting on trading forensics, communication surveillance, regulatory reporting, and guideline compliance. He advises on, and designs, operating models, selects systems, and implements business and technology solutions. He also leads development of Cutter’s alternative investments practices and the firm’s efforts to provide thought leadership and strategic and tactical advice to asset owner clients.

Prior to joining Cutter, Shankar held senior roles at IBM Global Services and PricewaterhouseCoopers (PwC), advising clients and leading global delivery teams in large engagements. Shankar holds a Bachelor of Science in engineering from the Indian Institute of Technology and an MBA in finance and information systems from the Indian Institute of Management.

Feb 20, 2024

The following blog post is one in a series of Cutter 2024 Trends, Themes, and Predictions that provides insights into industry challenges and considerations for firms in 2024 and beyond.

Where private market investments were once deemed as a choice only for the most risk tolerant investor, asset managers and asset owners have been increasing their investments in alternative asset classes over the past two decades. As they recognize the potential to diversify their portfolios and generate higher returns, firms have seen an explosion in AUM in private markets. During this same time, we’ve seen a host of technological advances and a corresponding effort by firms to incorporate technology and resources to develop and mature their operating models. By many accounts, much progress has been made. The problem? The focus of this operating model work has been to the benefit of supporting public market investments.

But in introducing alternative asset classes to their portfolios, firms also introduced disparate data and manual processes to patch together support for these investments. Support for private markets continued to lag within multi-asset firms, and these investments are no longer a small allocation of AUM. Over the past five-plus years, the vendor community has made notable progress in offering solutions that support private markets, but the level of automation and maturity of these solutions still significantly trails public markets.

In the last few years, however, we have seen a shift in thinking, with many drivers pushing firms to consider their target operating models from a multi-asset view ─ inclusive of considerations for private market investments to support risk-and-return analysis within investment processes. Regulations are one example. Jurisdictions around the globe are taking into account ESG legislation and its impact on both public and private markets. Meanwhile, regulators in Australia are increasing the level of scrutiny on the valuation of direct investments.

Looking Ahead

We see firms broadening their operational functions to support alternative investments throughout the investment lifecycle. Firms are paying particular focus to data models and governance to support improved data quality. They are also focusing on supporting a combined investment view for strategy, overlay, and ESG purposes. And valuation processes require adjustment aligned to source and frequency.

While asset managers and asset owners have struggled to deal with all the data and manual processes necessary to support private investments, they are searching for the best support models, software, and service opportunities. They’re examining their operating models to expand the range of private investments and to cater to their unique requirements. And firms are also looking at their ecosystem of vendors that support these models.

To that end, we see vendors and service providers extending their offerings to support alternative investments. Some offer managed services such as data collection for private markets. Vendors like BlackRock (eFront), Dynamo, S&P (iLEVEL), and SimCorp are all expanding private markets support with solutions and/or services for data collection. But many other vendors also offer managed or outsourced services and incorporate AI in myriad ways to support alternative asset classes. Many vendors are also consolidating to further their functional support.

The point? As Cutter member firms lack sufficient tools to handle increasing volume and complexity of alternative asset classes, they’re reviewing operating models to better support these asset classes. We know that no silver bullet exists that will cover everything, yet asset managers must fill gaps and improve efficiency. We believe that firms will focus more heavily on the implementation of new technology. We expect that asset managers and asset owners will continue maturing their operating models for private market investments and assess how their vendor ecosystems can help.

To learn more about this topic, or speak with a research analyst or consultant, contact us at [email protected].

For more information on member practices and the vendors helping with alternatives …

Alternative Investments

Report

Are Alternatives Risky Business?

Whitepaper