5 Considerations for Alternative Investment Firms Embarking on Digital Transformation

Remaining competitive in the digitally driven marketplace requires firms to respond to the challenge of attaining increased efficiency and quicker decision-making. To gain insight into how alternative investment stakeholders are implementing digital tools and technologies to gather and analyze their data, drive efficiency and make better-informed decisions, I recently moderated an engaging panel discussion of industry leaders called "Navigating Digital Transformation in Alternative Investments," including Calvin Wong, senior director, Aon Ventures; David Kereiakes, managing partner, Windham Venture Partners; and Danielle Valkner, partner, PwC. The discussion covered a range of considerations, including cybersecurity, regulatory compliance, and environmental, social and corporate governance (ESG).

Here are the five key takeaways from this thoughtful discussion on digital transformation.

1. Digital transformation is about more than integrating technology into operations.

Panelists defined digital transformation as becoming a digitally focused organization. This involves more than the implementation of new technology alone. It is about fostering a culture around gathering and managing data effectively and upskilling employees to have the necessary levels of digital acumen to use the new technology effectively.

The panel emphasized the importance of strategically adopting technologies that will deliver value rather than simply keeping pace with technological advancements. Tools must have a purpose that aligns with organizational goals, and a plan for upskilling employees is critical so there is adoption across the organization.

2. Digital transformation comes with rewards and risks.  

Data and cybersecurity concerns took center stage during the discussion. Many organizations are extremely cautious about recently introduced tools like generative AI, while others are growing more cautious after initial use due to concerns about control over data and potential exposure of sensitive information.

Despite enabling better decision-making potential and streamlining operations for organizations, some digital tools can also be exploited by cybercriminals. Therefore, the panel emphasized that companies who want to successfully navigate digital transformation must remember to mitigate these risks by upskilling employees for proper use, and ensuring their data is safe and protected.

3. Technology can streamline operations and decision-making, but it must be balanced with human-led oversight.

The panelists discussed the utilization of AI to improve operations, highlighting the benefits of AI virtual assistant capabilities and the use of machine learning for data processing. However, they also noted the importance of human-led decisions, emphasizing that current technology can’t entirely replace one’s job effectively. For limited partners (LPs) and general partners (GPs), they noted that the human element and relationships will always be incredibly important. An ideal transformation would involve a collaboration of human expertise and technology, producing more optimal results compared to solely relying on one or the other.

The group noted that some firms are reticent to adopt AI because of confidentiality risks and the low chance of detecting such infringements. Since current generative AI tools have shortcomings that include potentially incorrect outputs (i.e. hallucinations) and no confidentiality controls on inputs, they can pose major risks. The likelihood of a member of a firm unintentionally infringing on privacy and confidentiality policies is high, yet the chances of detection remain low. The potential for retrieving incorrect or outdated data and information from these tools is also high. These risks are prompting many firms to create controls and limitations on the usage of generative AI tools. The panel members agreed that these policies are a necessity to ensure effective and appropriate generative AI use and data confidentiality.

4. The push for better technology and more data transparency from LPs is top of mind for digital transformation within investment firms.

LPs want more data access and transparency. One panelist noted the challenge of balancing these demands with the needs of fund managers, yet how automated data aggregation and reporting have helped along with AI.

In the SS&C Intralinks 2024 LP Survey, we surveyed 241 global investors, with the most weight given to the largest companies. The report consolidates their insights into key indicators that will play a part in influencing LP decisions over the next year, plus offers some key intelligence for general partners (GPs) navigating the volatility and unpredictability of the current market landscape. According to the report’s findings, LPs stated that they are looking for digital transformation internally, not just from GPs. Among those not already using technology to aggregate data across their private markets portfolio, 97 percent said it would be helpful to have such a tool.

The panel also added that tools like bots and blockchain technology have great potential to help enable more transparency and data-sharing while retaining confidentiality and data security. However, they emphasized how the importance of human-led decision-making and risk management are key factors in the successful utilization of these technologies.

5. Firms that want to engage in digital transformation need to start small.

Digital transformation is crucial for companies to stay competitive, requiring strong data management and upskilling employees. The panelists outlined several initial steps for firms that have not yet prioritized digital transformation. They recommended upskilling employees to generate enthusiasm around transformation efforts and to gain control of data to understand where the data is, how it can be used and how it can be protected. Emphasizing the availability of many user-friendly SaaS solutions, the group highlighted the importance of correct configuration for security and educating on secure usage to meet organizational goals securely.

Balancing value, risk and rewards

Overall, the panel agreed that navigating digital transformation is about more than technology integration. It’s about selecting the right technology that will add value and efficiency and creating a data-centric culture around its adoption.

There was a consensus that AI adoption will continue to evolve gradually so that privacy risks can be circumvented with the right controls in place. Building a data-centric culture, while important for any firm that wants to continue to stay competitive, must involve acknowledging the risks that come with implementing new technologies and solutions, especially around data security and cybersecurity.

I would like to extend my sincere gratitude to the panelists for sharing their keen insights. To hear the panel’s complete discussion on key considerations for firms that want to use technology to make better-informed decisions in dealmaking, due diligence, fundraising, cybersecurity, regulatory compliance and ESG, watch the webinar here.