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Investing in Family Offices: Growth of Ultra-High Net Market Puts Tech Decisions in Spotlight

The number of ultra-high net worth individuals continues to climb. According to Knight Frank’s “The Wealth Report 2021,” this group will increase nearly 30% by 2025. For the family offices they enlist to oversee their alternative investments, a market of $14.8 billion in 2021 is expected to top $21 billion by 2027.

Opportunity awaits – for family offices that can handle it. For those that can’t, a technology gap will only widen, making it progressively more difficult to take on additional portfolios and business, stifling both their ability to preserve wealth and grow their own firms.

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Decision time

Family offices are at a critical juncture. Those prepared to invest and implement new tech approaches will be able to take on a greater portfolio volume and gain a lot. However, many family offices are wary of amalgamated portfolios. They lack confidence in the quality of investment streams, as well as the ability to manage data across views. It’s also an uphill battle to understand the timing and reliability of available reporting.

For example, an alternative investment like real estate is valued using models that provide an estimate, but data is available on a weekly basis at best and is labeled “indicative.” This word, simply put, means it’s a rough guess. More accurate estimates might come along for hedge funds and private equity, but those are often delayed until after the end of a month or quarter, while revisions continue and complicate matters further.

Given this scenario, it’s understandable family offices use at least two separate accounting systems. Typically, that means one for interim reporting and another for official accounting books of records. Naturally, varied systems mean various formats which only increases complexity.

More than ever, family offices must find a way to harness reported data for reliable, impactful and timely decision making. Thankfully, the technological means to do so finally exists and answers have emerged.

Characteristic confidence in Family Offices

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Reliable decision-making boils down to the confidence you have in your data. By leveraging the many intrinsic characteristics of investment data, it’s actually possible to measure, calculate and highlight valid data points that are reliable instead of those that require further investigating.

And a new class of technology is doing just that.

One such characteristic is investment type.

For example, you can expect the month-end share price of a stock like Apple to be accurate and available. A valuation of an investment in real estate, on the other hand, typically isn’t. Another characteristic is the amount of time since the most recent valuation and how the market has aged. The older an estimate, the less value it has for predicting activity. You can even measure confidence in an investment manager and their track record for valuing an underlying portfolio.

By assigning a weight to each characteristic, and combining them, data can appear in a new light. When you add in machine learning (ML) and advanced algorithms, you can not only generate even higher quality data, you can tag it with a level of confidence. This makes assessing reliability as simple as viewing a heatmap that visually reflects data quality for at-a-glance understanding. As a result, asset managers can greatly reduce the time spent questioning data, allowing them to automate functions and focus on unlocking new insights that drive greater performance.

Mission controlled

Data control is crucial for ensuring a family office sticks to its mission, and new technology is addressing that need, too. Foremost, the current generation of data engines can record details once and then deliver the data to the right downstream system for general ledger, investment tracking, modeling, analytics and performance. Then, by merging the above data confidence tools with a visual heatmap of entities and beneficial owners served by the office, staff can easily identify which tasks and data need their day-to-day attention. Further, some solutions can combine accounting and investment books of records (ABOR and IBOR) to streamline workflows, unearth insights and provide portfolio managers more relevant information and time to manage assets.

What’s more, some offerings include a library of reports, covering both the data and its confidence, to facilitate management and performance tracking. Advance modeling can then be used for private investments, hedge funds, personal assets and stocks. Scenarios can reflect liquidity gates, lockups and terms. And, pacing modelers can enable flexible capital call/distribution scheduling and simulation, a good means for flow forecasting.

When the addition of strong knowledge date reporting and audit control, it’s clear family offices now can better control their portfolios and carry out their daily mission. They can also control their own destiny by future-proofing operations and ensuring they have the right capabilities to take on more business at this pivotal industry moment.

[To share your insights with us, please write to sghosh@martechseries.com]

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