Forefront Communications

Family Wealth Report: How Technology Is Serving Alternatives Investment Space

Alexandra Hamer

Alexandra Hamer

NYC-based financial technology firm Canoe wants to make life easier for institutional investors, allocators and asset servicing firms dealing in the alternatives space. Preqin, the research firm, estimates that the alternative investments market (private equity, hedge funds, property, infrastructure, etc) market will top $14 trillion by 2023. Such investments are often less liquid than listed stocks, or bonds – but investors like the premium for lesser liquidity in these low-yield times.

Canoe, founded in 2013, recently signed a deal with SS&C Technologies to help users speed up and simplify processing alternatives data and closed funding in February led by Hamilton Lane.

Canoe CEO Seth Brotman talked to FWR about the forensics of the technology and how it is revving up analytics and performance for private investors. Brotman says that although alternatives have seen massive growth the last two decades, the corresponding investment in technology to help manage those investments has been relatively tiny, and his company is at the early stage of expanding that.

Wealth managers are sometimes slow to arrive at the tech party so how does your technology specifically help them?
Wealth managers get thousands of PDFs, each month or quarter, about private equity funds, hedge funds, real estate funds, VC funds, etc, that their clients are allocated into. They are spending time and resources going through each one of these PDFs to manually copy and paste data from them. And that data is always different depending on what you invested when and for how long.

We stream that process of getting the docs, understanding what data they are pulling from them, validating that the data is correct, and pushing it where it needs to go – accounting, investment tracking, reporting, and other solutions that wealth managers are using.

Typically, how do you validate that data is correct when it is largely unstructured data not regulated to the same degree as data in public markets?
A number of ways through weaving in business accounting and other logical rules, but the main way is that the head of our technology group as well as myself and other principals, who have worked in the alternative investment space [carry out the checks]. If we get a hedge fund capital account statement that shows things like withdrawals or subscriptions, dollar performance and beginning and end balance, you can systematically identify what the return should be for that period. If that percentage return on that doc does not match the recorded percentage return it indicates that, OK, something here is interesting. We notify this through the interface.

For investment professionals, risk clients, portfolio managers, [the technology] frees up more time to focus on more obscure data that they hadn’t had time before to collect and incorporate.

What sort of obscure data are you talking about?
If you are good size RIA and getting thousands of PDFs on a regular basis, and your team is doing this without technology, they might only pull very basic things: beginning balance, name of investment, who invested, and the day this applies to.

There is a lot of other info they might want to pull, that also goes back through the years: pace of distribution on capital, pace of calls of capital request of funds from the same general partner, info about individual portfolio companies, and digging into those areas.

What we are talking about really is risk and that feels a very different prospect now. How do you see your technology shifting more as a risk tool in the current volatility?
When you say risk, that word means a lot of things to a lot of different people. We focus on allowing our clients better tooling to build up the necessary data to help them make better decisions. Some of that revolves around them understanding their liquidity in their portfolio. Some of it comes from exposure, how much leverage they have, and which industry/sectors they are exposed to that can affect investment decisions; and some of it comes down to outstanding commitments and looking at the funds they have exposure to.

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