After 10 years in a zero-rate environment, interest rates and inflation are widely expected to remain higher for longer. The private markets, however, continue to grow, driven by its ‘democratization’ into private wealth investors together with increased allocations from yield-hungry institutions.
Private markets investing is no longer “a weird thing some pension funds are doing”¹ according to Hamilton Lane’s Mario Giannini, a trend which is borne out by the statistics. UBS’s Global Family Office Report² found that more than 8 out of 10 family offices now invest in the private markets, whilst a recent survey by McKinsey³ found that individual investors plan to increase their allocations to the private markets from 2% to 5% by 2025.
A scalable solution for investor onboarding, which addresses the inefficiencies of asking the same questions of investors on repeat, is needed if fund managers are to realise the significant opportunity for growth that comes with a much wider pool of investors.
Prioritising the investor onboarding process…
Fundraising from a small pool of large investors who understand the Subscription, KYC and Tax process has allowed fund managers to muddle through a fundraising every few years. Today, managers are raising bigger funds more frequently from more investors than ever before and so a centralised, joined up and investor-friendly onboarding process is mission-critical.
Many technology-only products solve part of the problem. A digital e-subscription booklet, for example, might make it quicker to fill in a subscription questionnaire, but the investor will still find themselves completing it again and again, possibly on a variety of different platforms before sending their KYC and tax documents back and forth with other providers or teams. E-sub docs alone are therefore a marginal play at best.
A trusted clearinghouse is the answer
Private markets investors typically invest across multiple funds and the evidence required by fund managers to approve them is determined by the same global guidance and principles. A trusted hub which enables investors to authenticate once, across KYC and Tax, to a commonly accepted standard then use this to pre-populate the custom sub-book of each fund manager can therefore act as a passport across the private markets to the benefit of fund managers and investors alike.
A single solution for an industry wide problem
Investor onboarding presents an industry-wide challenge for the private markets and thus demands an industry-wide solution.
It’s a fixed cost for fund managers each time an investor is onboarded, further increased by the ongoing responsibility associated with managing and maintaining this information. For investors, there’s the hassle factor of providing the same information multiple times. Whilst for service providers collating and reviewing investor Securities information, accreditation checks, KYC and Tax forms is time-consuming and diverts resources from higher value activities. To end this cycle of inefficiency, what’s needed is an onboarding clearing house to provide:
- A trusted approval status for investors across all of their portfolio;
- Joined-up investor access to their own Subscription, KYC and Tax information, helping them to keep it up to date;
- Intelligent and friendly subject-matter support exactly when it is needed.
Connecting the private markets in this way improves everyone’s experience, drives efficiency and enables further democratisation and innovation.
Deepening the investor pool
Increased liquidity, primarily from the growth of the secondaries market, combined with meaningfully reduced minimum commitment sizes and regulatory changes relaxing the rules around qualified / accredited investors has facilitated wider participation in the private markets. Yet despite this innovation on the front-end, without also addressing the cost and complexity of the onboarding process, a universally accessible financial markets eco-system will remain elusive.
At IDR, our vision is to be the trusted hub of the private markets, enabling expansion and democratisation through an efficient and investor-friendly onboarding clearinghouse. Over 300 fund manager clients across 5,600 funds now enjoy faster and easier fundraising from pre-approved investors. Our 40,000 investors, from Sovereigns to individuals, control their single globally compliant access token across their private funds portfolio. Whether you’re raising now or preparing for your next big closing, come join us!
[1] https://www.hamiltonlane.com/en-us/insight/private-markets-made-human-podcast/episode-1
[2] https://www.ubs.com/global/en/family-office-institutional-wealth/reports/gfo-client-report.html
