Our thoughts on private markets technology in 2024

2023 was a challenging year for financial markets across the board with declines in funding rounds, valuations and a quiet IPO market. Continuing quarterly pullbacks in private equity investment, bank failures and private markets firms struggling to raise capital and needing to cut costs were frequent messages being reported across news outlets globally. 

However, we did see plenty of industry acknowledgement of the ongoing opportunities that exist within private markets in various forms, and certainly saw a trend for financial firms continuing to explore new channels for distribution and raising capital. Subsequently, regardless of industry dynamics, we continue to see the importance of digitisation in private markets, both through scaling up in times of demand or simply ensuring operational efficiency and compliance – these trends remained commonfold regardless, and often intertwined.

As we look forward to 2024, private markets are of course poised for further industry developments and routes to growth in different forms. In this blog, we share some technology focused insights from our perspective as a non-conflicted technology infrastructure for the industry, and outline some developing trends we see being talked about in the world of private markets that have potential to evolve over the coming year. 

A focus on digital client experience

Interest and demand in the alternatives space continues to push the need and the opportunity to deliver a digital experience for end investors in a way they have come to expect across their day to day engagements. Firms need to balance this by remaining compliant with regulatory change across multiple geographies, and ensuring their advisors and firms remain a key focal point for guiding clients as they navigate the world of alternatives. 

Operating a digital client experience opens up further engagement channels for the firm and takes it from being a one way manual process and into a two way, ongoing engagement. This isn’t just within visualising distribution of investments opportunities and the ongoing reporting, but also the role of educational tools, other modules and digital capabilities that clients often see elsewhere in their investing landscape. These tools can be applied to and play a relevant role in furthering engagement, building relationships, developing awareness and interest both in the market and the brand of the provider.

Some new entrants in the space have emerged with this digital thesis as their key differentiator, some looking specifically at alternative asset classes, whilst others are looking at the entirety of a client’s wealth proposition more broadly. 

We’ve seen examples such as Sidekick and Vega emerge, both offering solutions via a digital first client experience and exemplifying the shift towards a more user-centric and technologically driven investment landscape. Their digital-first client experiences not only cater to the preferences of modern investors but also reflect a commitment to using a digital capability to realign with the changing demographic of wealthy investors.

Growing conversation around end-to-end alternatives digital transformation

Many larger financial players are recognising the potential for private markets operating infrastructure to exist across their organisations, rather than in silos that remain fragmented and disconnected. 

Decisions are increasingly being made at various senior levels with a view to exploring how private market digitisation can be futureproofed. This move aims to enhance efficiencies right across front, middle, and back-office operations, forming an integrated and standardised solution that guarantees the scalability of their proposition and the ability to evolve with changing industry developments. Off the back of this, the ability to introduce new products and propositions in the future is expedited at a significantly reduced time and cost as they can leverage existing operational workflows, own their own user experience and manage their supply chain accordingly.

Taking this a step further, they are in a position going forward where they can continue to offer different clients access to diverse propositions based on their business model, client type, risk profile and relevance.

With this focus on end-to-end digital transformation, we expect to continue seeing solutions develop in the market that look to solve those end-to-end challenges. Either in a single operating system, or through the consolidation and integration of multiple solutions creating enhanced value from becoming a sum of the parts. 

At Delio, we’ve launched Delio Plus – enabling firms to leverage our existing technology and expertise to partner and build for bespoke use cases and applications.

Converging needs of distributors and asset manager’s technology requirements

On one hand, we’re seeing more and more distributors understanding the need and importance of having their technology built for their own individual needs, allowing control of their own proposition and their technology infrastructure to be fit for purpose. This enables them to remain agnostic and expand their network and product range accordingly whilst automating subsequent manual processes. When introducing new products from internal channels or collaborating with specific external partners, employing a standardised, yet customisable operating workflow through technology aids them in achieving scalability.

On the asset manager side, more and more are looking to own their end-to-end technology stack, from back office through to end client experience. This becomes even more relevant as they start opening up to wealth and individual clients as key distribution channels. Many will look to add specialist personnel in this area, but also look to launch their own digital solutions where they can offer access to their product through their website – integrating into a digital platform that they can also use internally to manage the increased operational workload this may involve. 

EQT Nexus is a good example of this. It’s their first strategy for individual investors, enabling access to EQT’s diverse range of investment strategies through a single investment. Through this, they are reducing the barriers to entry for their private equity and infrastructure strategies, with lower access minimums opening up the type of clients who can invest. 

Growth in appetite for digitally embedded product structures that reduce investment friction

Technology needs to extend across and beyond the client experience to generate true operational efficiency, hence many solutions are being developed to solve the back and middle challenges, revolutionising the service provider landscape. Be it transfer of assets, managing of internal processes and workflows, leveraging data or venturing into new technologies such as blockchain and RPA.

Clients increasingly expect seamless access to investment products and investment vehicles can deliver this and enhance flexibility in client access, whilst the integration of a digital “wizard” experience plays a pivotal role in accelerating this process whilst ensuring compliance and reducing error. We are witnessing the emergence of numerous new players actively seeking solutions to enhance and streamline these various user experiences as a key strategic driver for servicing their clients.

Many well-established and successful players in the fund administration and placement agent space, for example, are investing in their technology capabilities more than ever – both for today and for the future. Often this involves looking at ways to move away from legacy or manual systems, rethinking ways of doing things and taking a digital first approach to improving their efficiency, the outcome again being enhancement of their overall client experience.

Tokeny, a compliance infrastructure for digital assets, is an example of an organisation looking to solve some of the challenges facing service providers using blockchain technology. They recently received a strategic investment from Apex Group, a leading single source global financial solution provider. The partnership positions Apex to offer its comprehensive solution set reimagined in the era of tokenization, spearheading digital transformation and change in the financial services sector.

Opportunity for solving cross-firm distribution challenges using technology 

There are many different types of firms who play a role within private markets transacting and so relationships are required between numerous firms working cohesively and consistently. These relationships play an important role in helping players in an ecosystem to access new opportunities or unlock new sources of capital, often going across firms to share investment opportunities. This is often through manual workflows, but there’s a chance to make it digital. 

We see this appetite for firms and new entrants to connect and collaborate, taking advantage of these opportunities through the building out of connected ecosystems, improving investment flows at scale and reducing barriers to successful private markets engagement.

This presents an interesting challenge and opportunity for the industry with potential for standardised technology and infrastructure which meets the needs of firms’ individual digitisation requirements, but also allows smooth connections with the external landscape.

We believe solutionising for this challenge will come from a combination of standalone solutions currently used by companies to merge into larger infrastructures and APIs. Additionally, there will be the creation of tools that enable broader ecosystem connectivity seamlessly integrated into the everyday tools used by firms. 

We continue to be proud of playing a part in how the industry is developing and welcome engagement with financial firms in the broader ecosystem to discuss opportunities and some of the exciting projects we expect to see launching in 2024. Whatever happens with market activity and performance in the industry, we’re excited by the potential role that some of the developments will play in the year ahead.

Find out more about our work at Delio by visiting our website.