Alternative Investments: How Purpose-Built Technology Alleviates The Operational Burden

Michelle Wilson is Head of Product at Canoe Intelligence, a financial technology company powering alternative investment intelligence for institutional investors, capital allocators, wealth managers, and asset servicing firms. In this article, Wilson explains the operational challenges investors face in this industry and highlights the benefits of choosing the right technology solution to manage the operational burden.

As investors seek out higher yields in the current low interest rate market, they are allocating more capital to private market asset classes. Investments in alternative asset classes have grown from $4.6 trillion to $13.3 trillion in the past decade. By 2026, these investments are expected to nearly double.

While the benefits of alternative investing are clear, wealth managers are often surprised by the operational burden of managing these assets. Most alternative investment managers exclusively offer reports and notices in PDF or hard-copy formats, meaning that, to consume the data in their downstream systems, investors must either manually transcribe these data points or figure out ways to extract and digitize the relevant information. Furthermore, the content and structure of these statements vary widely across the different asset managers, as there is no unified reporting standard for the private markets. Documents are also made available to investors via disparate channels like online investor portals, or via email as attachments.

NAVIGATING UNFAMILIAR TERRITORY

Unlike traditional investments, the esoteric nature of alternatives makes the associated reporting very complex. According to Michelle Wilson, Head of Product at Canoe Intelligence: “As a wealth manager increases their allocation to alternative asset classes, they quickly become inundated with a high volume of likely unfamiliar documentation. To cope, firms may end up allocating more time and resources towards supporting the post-investment process, rather than to higher-value functions like investment research or client engagement.” To deal with these challenges, investors who lack a sufficient understanding of the nuances of these asset classes may encounter some common pitfalls. Wilson notes: “A lot of firms resort to building resource-intensive manual teams to manage this process, which is not only expensive but also increases the risk of client service-level agreements (SLAs) being missed and other human error. It becomes extremely difficult to scale.”

EXPLORING SOLUTIONS: TRIAL AND ERROR

Alternatively, some firms opt to outsource these workflows to administrators or managed service providers to free their team’s time for more value-adding activities. However, rather than eliminate the work, this approach simply transforms it into oversight of the third party, introducing a level of opacity that weakens control and could cause unintended risk.

It is no surprise then, that some investors turn to technology to solve the challenge of digitizing the data to alleviate the burden on their teams. However, even with this approach, a common mistake is to select generic solutions which may seem initially attractive based on a lower price point.

“Whereas generic solutions are typically optical character recognition (OCR) based, technology like Canoe’s is purpose-built and incorporates a deep knowledge of the alternatives industry. Generic extraction solutions are better suited to highlystructured documents.”

As Wilson notes: “Whereas generic solutions are typically optical character recognition (OCR) based, technology like Canoe’s is purpose-built and incorporates a deep knowledge of the alternatives industry. Generic extraction solutions are better suited to highly-structured documents. In the alternatives space, documents are largely unstructured and the vocabulary is specialized, so the generic technologies do not perform well.”

For example, “Our field library is very tailored to the kinds of terms you would see used in the alts space, down to the different ways firms refer to the same data point across the industry.

Canoe has all of that nuance built into the platform.” As for any remaining cost savings, Wilson adds, “These systems are not tailored to alternatives, so oftentimes you end up spending extra resources on checking and fixing errors. That time could be better spent doing high-value work, letting the purpose-built solution handle the nuances of alts on your behalf.”

In a similar vein, wealth management solution providers often don’t cover the holistic end-to-end post-investment workflow. According to Wilson, firms evaluating solutions may become hyper-focused on solving one specific issue, like data extraction, without thinking about the whole workflow. To take full advantage of their investment into alternatives, it is essential for wealth managers to implement an end-to-end solution.

“For example, they might not think about how they are even getting the documents into the extraction system in the first place. The truth is, many people still end up manually logging into these portals, which comes with the operational overhead of managing portal credentials, dealing with expired passwords, and other tasks, delaying the subsequent extraction and aggregation processes. When you focus too much on one function or try to buy different tools for each piece of the workflow, you may end up with a jumble of tech solutions without knowing if they can work together.”

In addition, generic solutions will not necessarily integrate well with other solutions in the wealth manager’s tech stack. Wilson adds: “You likely have in-house accounting or treasury systems to be considered. The data extracted from these documents needs to be able to seamlessly flow to these downstream systems. When you pair a system like Canoe with a downstream integration partner like Addepar, you end up with a more seamless end-to-end wealth management solution.”

FINDING THE SWEET SPOT: WELL-INTEGRATED, PURPOSE-BUILT SOLUTIONS

In leading her team at Canoe, Wilson places a heavy focus on building integrations and ensuring everything can talk to everything else, both internally and externally. She notes: “In my past life, I have seen vendors offer good systems for a number of different purposes, and even though they were all part of the same suite of products, they didn’t integrate well together. The clients, even if they had the full suite, had to deal with a complex download-upload situation between each system.”

Ideally, in that case, they would just push a button and the data would move between each automatically. Wilson offers the idea of a holistic approach to solution-building, much like the one she drives in her role at Canoe: “My goal is to ensure that everything Canoe does plays well with other downstream systems. I am making sure that we’re building everything in a flexible, thoughtfully-structured, system-agnostic way. We have public-facing APIs that anyone can call to push the data into any downstream system, limiting the need for clients to build custom integrations for each piece of their tech stack.”

What does this ultimately look like? It looks like one seamless solution for document collection, ingestion, categorisation, extraction, validation, and data delivery can manage the entire workflow – automatically performed on the client’s behalf.

REALISING VALUE: AN END-TO-END SOLUTION FOR ALTERNATIVES

Wilson adds: “We are doing everything end-to-end. Through Canoe Connect, we automatically collect documents and deliver them to Canoe Intelligence for immediate use. We serve as a unified data repository, so our clients’ data is not fragmented. They have full visibility into their documents, their data, and the performance of their investments within a centrally accessible client tenant.”

Looking to the near future, Wilson wants to take advantage of the data in Canoe’s fund master, counting more than 20,000 funds to date, to generate deeper insights for investors. “When we see a document for a new client, we have likely seen other documents issued from the same fund to existing clients before. Canoe is able to enrich the technology itself with intelligence from the vast volumes of specialized documents we have processed in the past. We can leverage that shared intelligence to drive additional insights that investors can use to inform investment decisions, evaluate fund performance, or shape operational planning.”

About Canoe Intelligence

Canoe Intelligence redefines alternative investment data processes for leading institutional investors, capital allocators, asset servicing firms, and wealth managers.

By combining industry expertise with the most sophisticated data capture technologies, Canoe’s technology automates the highly-frustrating, time-consuming, and costly manual workflows related to alternative investment document and data management, extraction, and delivery.

More than 200 companies leverage Canoe to refocus capital and human resources on business performance and growth, increase efficiency, and gain deeper access to data.

For more information, contact: sasha@canoeintelligence.com bdaitch@canoeintelligence.com

“We serve as a unified data repository, so our clients’ data is not fragmented.”