Private markets technology: Should financial institutions buy or build in-house?

Private markets technology: Should financial institutions buy or build in-house?

15th February 2024

Before we go any further, here’s the spoiler: you’re reading this article on the website of a private markets technology company, so you can probably guess the answer to the question now. 

However, the debate of whether financial institutions should buy or build their digital private markets platform is one that we continue to see on a regular basis. As a result, we thought it would be helpful to explore some of the reasons why firms still consider an in-house build despite there being plenty of market-proven technology vendors available to them.  

As a starting point, we should make it clear that whichever route an institution decides to take, implementing a digital delivery strategy for your private markets offering is a must. Connecting investors with alternative assets using a traditional ‘relationship-led’ approach is tough; it’s slow, time consuming, prone to regulatory issues, and highly unlikely to be scalable.  

Digitisation solves all of these problems. But is outsourcing or building your own solution the answer? In this blog, we’ll explore the most common decisions facing firms.

Time and cost efficiency

As we probably all know, building in-house technology solutions of any type can be a time-consuming and costly process. Yes, at the end of the project you will have a completely bespoke system setup to meet your exacting needs, but to get there you will have to allocate significant resources and personnel to design, develop, and test the technology. You will also need to factor in the cost of ongoing maintenance and upgrades. 

It’s also highly likely that an in-house build will take years to complete, rather than months. This raises another question: how are you going to serve your investors during this time and will they be prepared to wait while your system comes online? With demand for private markets continuing to grow, the ability to launch or scale a proposition quickly is vitally important.

Buying private markets technology that has already been developed, tested, and has credible use cases already in place could save significant time and money. Technology vendors like Delio, have already invested time and resources into developing their software and are constantly refining it based on feedback from their clients. As long as your chosen vendor has the functionality to enable you to configure your platform, they are likely to be able to get you up and running much faster and at a lower cost than building their own.

Expertise and innovation

Many technology firms operating in the private markets space specialise in developing digital products specifically for this use case. Delio, for example, employs people with years of experience, in-depth knowledge and expertise on both the tech and investments side of the fence. This unique combination allows us to create innovative solutions that are tailored to the unique challenges of private market participants. 

When firms build technology in-house, there is likely to be a tendency to develop a solution that serves a very specific need at that time. It may not take into considerations around emerging technology such as tokenisation and blockchain, that specialist vendors will be exposed to by working with various firms in different sectors. As a result, an in-house platform may quickly become out-dated or need significant redevelopment to keep up with industry innovation. And as we all know, allowing your tech stack to become a legacy system brings a whole new suite of challenges for the future.

Flexibility and scalability

The needs of private market participants can change rapidly. Firms who build technology in-house may find it challenging to keep up with the changing demands of their clients. Private market technology firms, however, are designed to be flexible and scalable. They can quickly adapt to changing market conditions, regulatory requirements, and client needs. 

By working with a technology partner that is agile and responsive, financial institutions offering access to alternative assets can ensure that their platform is using cutting-edge technology that can grow and evolve with their business. Just as importantly, it will also help to deliver a best-in-class user experience for your investors who now demand an elegant and intuitive digital investment journey. 

Risk management and compliance

Private markets are one of the most heavily regulated areas of financial services. Robust regulatory governance is essential to avoid legal and reputational risks, and maintain investor confidence. 

Building technology in-house will require a huge amount of time, energy and effort to ensure that the platform meets regulatory compliance requirements. All unique internal and external complexities will need to be accounted for, embedded into the platform’s design, and then tested rigorously to ensure it operates as expected. Firms also need to consider how quickly their platform could be updated to reflect changing regulatory standards or territorial expansion that would be subject to different regulations. 

On the other hand, a private market technology vendor will have already invested time and resources in ensuring their software is compliant with industry regulations. Compliance processes will have been designed, built and tested by industry experts. You will also have the confidence of knowing that other firms with similar operating models to yours will have been using the technology to manage their regulatory governance for many years already. 

In conclusion…

For many firms, the thought of building their own bespoke private markets platform can be an alluring one. However, the reality is that unless you have the expertise, resources and time to commit to such a project, working with an experienced private markets technology vendor is likely to be a much less painful experience.   

While you won’t end up with a truly bespoke product, some vendors will have designed their technology to enable a high degree of configurability, underpinned by a proven digital foundation. This approach is likely to offer the best of both worlds. 

We think our client, Bolt Angels, put it best when asked why they chose Delio instead of building in-house; “We decided that we didn’t want to spend our time on running the regulated side of the business and the tech that goes alongside it. We want to focus on where the deals are, who the great founders are, and how we support them in growing their businesses. 

“It’s a very easy platform to integrate investors onto, we know we don’t have to meet in person, there’s no paperwork – these are all big ticks in boxes for us in terms of ease of use. This has meant we could go from an initial idea just six months ago to having raised £1.45 million and completed the process in a fully regulated way.”

Discover how Delios technology can help you