Investor Reporting: Achieving Best Practices via Web Delivery Platforms

In the wake of the global financial crisis, investors are calling for greater transparency and more frequent reporting from alternative asset managers. Investors have become increasingly selective about which firms/fund managers they choose to continue their relationship with, and approach new investments with a high degree of caution. A firm that does not securely and frequently communicate with its investors risks its relationship, reputation and ability to conform to regulatory mandates. Additionally, once registered with the SEC, an investment advisor may be subject to periodic regulatory audits, and thus firms must be able to manage their data in a manner that helps them pass regulatory examinations.

Current State of Technology

When it comes to the distribution of time sensitive investor account data, the current communication practices of many investment management firms are far from ideal, given increased investor demands and looming regulations. Many firms lack sufficient staff and IT resources, and still use traditional methods of communication including email, overnight delivery and password-protected websites – none of which can provide an adequate level of control over what investors and other parties (including internal employees) do with their confidential information.

A recent survey conducted by IntraLinks (enterprise-wide on-line communication solutions) and Preqin (information products and services for private equity and venture capital firms), revealed that current reporting processes are not matching investors’ preferences. Only 1% of investors surveyed had a preference for hard copy reports, but at present 13% receive reports in this form; 50% are sent emails, while reports are distributed via on-line platform to the remaining 37%. Additionally, 69% of investors consider an on-line platform to be the best way to manage and view historical data.

Emerging Alternative

On-line communication platforms are emerging as an alternative to traditional document-sharing methods, and they are clearly the optimum distribution method from the perspective of both the investment management firms as well as investors. Such platforms enable funds to instantly share critical information in a timely and consistent manner and verify that investors have viewed time-sensitive materials, while ensuring that confidential documents are reviewed only by the intended recipients. There are several approaches to implementing a web-based delivery platform: (a) building an in-house application, (b) purchasing a third party solution and locally installing it, and (c) Software as a Service (SaaS) model. Each of these solutions has their pros and cons.

Building your own web portal allows the most flexibility, but can be very costly and can take months or even years to implement, while putting additional pressure on often already stretched IT resources. Third party solutions can provide some of the advantages over building your own platform, but are generally expensive and require technical staff to support. Also, the cost and time required for customization can be significant. The SaaS model offers many of the benefits of a third party solution, and at the same time is more cost efficient and allows greater flexibility. SaaS is priced on a ‘pay-per-volume’ basis that enables customers to pay for the level of service they need. Sites can be custom branded to meet company needs, and providers have support desks to address end user questions. Also, most SaaS based solutions are intuitive enough that non-technical staff can control and execute a firm’s investor communication program.

Sound Practices

Although functionality available within a critical information exchange solution typically includes the ability to securely share, track, organize and manage documents, the maintenance process, including uploading the documents and setting the appropriate security permissions associated with a specific document, can be a challenge for some firms. One way to streamline the maintenance process is to use automated tools to manage the client structure, document permissions and document uploading.

If a firm seeks to [further] automate their investor reporting, integration of various enterprise content management systems is certainly a sound practice. Although such a project is typically sizable and requires customization, the results can create major cost savings and efficiency benefits. For example, if all of the entitlement-based information in a firm’s CRM solution, including performance data, investor details and manager communications are automatically transmitted to the firm’s investor web portal, at the front end the investor relations group can manage investor access and reporting to their web portal, and make changes or adjustments directly from the CRM. Some of the immediate benefits are reduced time spent on administrative tasks, standardized, rapidly delivered information and improved investor servicing.

Various industry vendors offer a wide selection of services and products that can facilitate different aspects of the investor reporting automation process. Some of the prominent providers are: IntraLinks, SunGard Investran (DX), Nasdaq OMX (Shareholder), AltaReturn, Backstop (InvestorBridge) and Netage Solutions. Also, ProTrak (a CRM solutions provider) and CorrectNet (information delivery and reporting applications) provide an integrated platform for hedge funds. All of these solutions enable users to securely share and manage documents/data; and offer CRM integration. Some of these providers such as Netage Solutions offer flexible deployment (SaaS or on-premise). When selecting a solution, it is vital for a firm to first build a list of business requirements and then, based on these, to evaluate the choices (including deployment options, functionality, vendor experience, and hosting infrastructure).

Final Thought

In today’s marketplace, where competition for investors is fiercer than ever, efficient operations, greater accountability and ability to maintain a strong relationship with investors is essential in garnering repeat commitments as well as bringing in new business. A web-based delivery solution is becoming a popular method for investment management firms to handle their investor relations. This is clearly the only medium to meet all the criteria for establishing an effective, investor-focused reporting program, at the same time guaranteeing data security and enabling firms to comply with applicable regulations.

Web portals should be seen as a true investment in a firm’s business, its image and its professionalism. Certainly, the build vs. buy vs. outsource decision should be addressed early on because that will drive a lot of your actions. If you asked for a single recommendation, SaaS appears to be the optimum model, especially for small and medium size firms. This model is cost efficient, allows flexibility, and typically does not require support from internal IT staff. Once the maintenance process is automated, the SaaS approach can allow an organization to continue to expand without adding operations staff.