At WealthForge, we have an expression: Where capital goes, progress follows. So it was with great interest that I attended the ADISA 2018 Spring Conference, held last week in Orlando, FL. The ADISA (or the Alternative & Direct Investment Securities Association) Conference is the premiere industry event for sponsors, advisors, and service providers who are engaged in the ecosystem of selling, buying, and supporting alternative and direct investments. While there, I observed a common theme across many of the panel discussions, presentations, and exhibit hall conversations: this group of leaders is ready to embrace technology to provide a better experience for sponsors, advisors and their clients.
And this movement is coming at an opportune time. Just a few days after the conclusion of ADISA’s conference, the Wall Street Journal published an article touting a boom in private capital, with at least $2.4 trillion raised in 2017 alone. Should the trend continue, this oft-overlooked corner of the investment landscape could be poised for dramatic growth.
From the very start of the conference the tone was set, as I joined the audience for a panel discussion titled “The Next Frontier: Using Technology to Improve the Asset Manager or Broker-Dealer/Shareholder Experience.” Speakers, Brad West of FS Investments and Mike Huisman of DST Systems, provided a paradigm shattering vision of how sponsors, advisors and their firms, custodians, and transfer agents can collaborate to improve the investment experience for illiquid retail alts. It is exciting to imagine industry participants adopting advisor facing technology and a standardized method of data integration and transaction processing that brings us out of the dark ages of paper-based subscription documents.
As the conference progressed, I continued to notice certain topics make their way into nearly every conversation: straight through processing, automation, electronic signatures, data analytics, and API integration. And for good reason – the sponsors and advisors who attend ADISA represent an industry that in 2017 invested over $4 billion in public non-traded REITs, $2 billion in 1031 Exchange DST programs, and $800 million in BDCs.
While those are impressive figures to be sure, it is hard to believe that virtually all of those individual investments were completed with paper subscription documents, manual processing, and all of the frustration, inefficiency, and lost opportunity that entails. Imagine what the industry could achieve were we not still locked into the legacy, paper-based “check & app” paradigm that the mutual fund industry began to shed in the 1980’s. To see the exponential benefits that a standardized, streamlined, and automated investment process can yield, we need look no further than the growth mutual funds have achieved.
The above chart illustrates the mutual fund industry growth in transaction volume and decrease in transaction costs as Fund/SERV, the US standard for mutual fund investment automation and processing, was released in 1986 and quickly gained industry adoption.
Will the alternative and direct investment market follow the trajectory of the US mutual fund industry? Not exactly – our products generally tend to be less liquid, riskier, and thus suitable for a smaller universe of potential investors. However, it is clear that, starting with investors, we all benefit when sponsors, advisors and their firms, custodians, and record-keepers embrace technology that brings transaction processing efficiency to the market.
ADISA 2018 may be a watershed moment that helps us move forward together. After all, when first introduced, Fund/SERV had only six clients processing 15 orders a day. Why not us?
Disclaimer: WealthForge provides this information for educational purposes only. It should not be construed or relied upon as legal or tax advice.