If you can’t beat them, join them: Why liquid alternatives and hedge funds must embrace digitalisation

Fiona Mulligan, Global Liquid Alternatives and Hedge Fund Product and Solutions Manager, and Kate McDermott, Head of Business Change and Implementation – Investor Services, explore the changing digital environment and what it means for liquid alternatives and hedge fund providers.

We didn’t want to build a portal that our competitors have; we wanted to build a portal that our clients actually need. And that co-creation ethos has been, and remains, the key driver in CapLink Investor’s development.

Everyone benefits from digitalisation

The benefits of digitalisation to liquid alternatives and hedge funds and their clients are manifold. Digital portals originated as document repositories, and for many investors that remains a primary attraction. Once an investor allocates to a fund, two types of documents are critical for them. One is a contract note for proof of purchase. The other is a monthly statement which provides them with latest value of their investment. Previously these were sent via perceived less secure methods such as post, fax or email.

Digital repositories mitigate risk by providing a secure document vault which investors can access when and where they want. Through the portal, investors and managers also have an overview of their entire portfolio, with all the documents and transactions stored and saved in the same place. From there it is easy to import the data into their own systems to analyse as required.

The servicing demands, and functionality to support them, have since moved on apace. As well as a document repository, portals can now serve as powerful communications hubs, facilitating real-time interactions between liquid alternatives/hedge fund managers and their clients. Investor self-servicing demands continue to grow, including for self-directed trading. And as the functionality expands, so do the needs for robust governance and cybersecurity.

This digital evolution offers a win-win-win. Investors gain real time access to information and control over their portfolios. Liquid alternatives and hedge funds can better monitor their end-investors and be more responsive to their needs. Plus portals reduce fund administrators’ operational risk and free them to focus on providing higher-value service support where it can have the greatest impact.

While digital portals have become commonplace across the liquid alternatives and hedge fund industry, delivery quality is mixed.

At the Securities Services business line of BNP Paribas, our driving motivation was to build a digital portal ecosystem that gives clients the functionality they actually need. So we opted for a co-creation model. We queried our clients, then leveraged the expertise within the bank’s dedicated Digital Innovation Lab to develop a portal that meets those user priorities. And we continue to drive development the same way. Through our monthly service reviews, we collaborate closely with our liquid alternatives and hedge fund clients to ensure their needs, and those of their investors, are reflected in our digital roadmap.

The result is CapLink Investor, a sub-portal within Securities Services’ broader NeoLink digital client platform and part of a wider investment programme aimed at strengthening our alternatives offering. CapLink Investor’s comprehensive digital capabilities provide fund managers, investors and authorised contacts with secure, real-time access to their fund holdings information across the trade lifecycle, including supporting documentation.

A document repository provides a central store for all relevant documents, from contract notes to K-1s, fund newsletters and audited financial statements. All documents have the added feature of a watermark capability. Embedded search filter and sort functions make quick information access even easier. Key fund details that are typically buried in fund prospectuses, such as fund identifiers, minimum investment amounts and bank details are made visible through the portal. All data points on the portal have a copy to clipboard feature to enable efficient data extraction and transposition.

CapLink Investor also puts trading power in users’ hands. Digital trading functionality allows investors to electronically complete and submit additional subscriptions, redemptions, switches or transfers directly through the portal using customised trade forms pre-populated with their static data to save time and reduce data entry errors.  

CapLink Investor Manager View provides liquid alternatives and hedge fund managers with additional features such as a report builder and document library where all reporting can be delivered securely to them. In addition to this, the manager has the Investor 360 feature within the portal, which gives them real-time views of their investors’ activity – pending transactions, executed trades, holdings information with the most recent NAV, investor profile data and documents. Within this feature the manager has the ability to clone exactly what their investors can view real-time on the portal. This is a significant feature which adds real value to the user journey.

At BNP Paribas, data analytics capabilities are at the heart of our ambitious data strategy, which is particularly focused on the reliability and fluidity of data, two essential elements for conducting analysis and detecting opportunities. Within CapLink Investor we have introduced an internal admin module that analyses how investors are using the portal. Armed with this information, managers can better understand their investors’ needs and what they are looking for, enabling them to provide more responsive and targeted servicing. 

Thanks to our in-house Digital Innovation Lab, we have the agility to respond to client requests and quickly develop new functionality and additional features. Enhancements to the portal are being rolled out all the time.

Security is paramount

Robust governance and cybersecurity remain an ongoing focus. Security threats are constantly mutating and proliferating. We apply the National Institute of Standards and Technology (NIST) framework for cybersecurity best practice and work continually to ensure our infrastructure protections are up to the task. The CapLink Investor back-end is developed as cloud-native microservices and deployed in the BNP Paribas private cloud. Robust firewalls are in place.

Data security is further enhanced by minimising manual inputs and stopping multiple people from touching information. Here automation is crucial. Marrying the portal’s self-service capabilities with our API network allows investors to input trades and other information, and for it to automatically populate our downstream systems without human interference. The APIs are backed by distributed in-memory database Apache Ignite for fast query results, leading to excellent user experience. Plus the automated, interconnected system environment increases process speed, accuracy and efficiency.

Next steps

The commitment of BNP Paribas’ Securities Services to enhance our digital offering will be continued through 2024. Within CapLink Investor, we have exciting plans for more user self-service options, increased reporting capabilities and continued user interface/usability feature upgrades.

Furthermore, our digital roadmap for 2024 shows the ongoing need for increased document exchange between investors and managers. We are excited to expand our document repository feature, further connecting our liquid alternatives and hedge fund managers with their current and prospective investors all through the CapLink Investor and manager portals at a time that suits them.

Multi-pronged service support

While a strong, multi-functional digital portal such as CapLink Investor is now an essential part of the liquid alternatives and hedge fund services mix, at BNP Paribas we see our digital capabilities as a powerful support, not a replacement, for our investor servicing teams.

Different investor cohorts have different needs and preferences. And their service expectations will vary according to the situation. Next-gen investors may want to digitalise their interactions wherever possible. A hybrid approach or traditional person-to-person support remain important in other cases. For instance, many institutional investors want to see their statements and contract notes through the CapLink Investor portal, but opt to use in-house systems to generate/confirm trades, manage settlement and receive statements, which all also feed through our SWIFT messaging network.

One size fits no one, and our service model reflects that. Rather than outsource support functions, we maintain dedicated teams to look after any queries that come in from our clients and their investors. Having this balance of the digital and the personal allows us to serve all parties promptly and in the way they need – which allows them to embrace the digital world and the opportunities it offers.