How Technology Enables More Transparency Between Fund Managers and Investors

By Meghan McAlpine and Aiko Suyemoto

Investors have become increasingly insistent around the issue of transparency when selecting a fund in which to invest. According to a survey by Intralinks and Opalesque, 89% of hedge fund investors and 71% of private equity and real estate investors did not invest in a fund due to transparency issues. As a result, alternative asset managers face mounting pressure to provide more information in order to attract potential investors and obtain allocations; yet, given the risks of sharing such sensitive data (e.g. monetary risk, reputational risk, and regulatory risk) they are reluctant to do so.

Firms can take precautions to protect against cybersecurity threats. Given that firms are sharing more data with investors, they can implement a secure form of communication between the two parties to ensure privacy. Many fund managers are foregoing email communication, opting instead for investor portal solutions as a means of communicating. In these portal solutions, document and user-level permissions allow GPs to control who has access to what content, including revoking access to documents at any time.

Cloud-based solutions can have a solid infrastructure and high level of security, in addition to strong investor adoption levels. Since many fund managers are turning to out-sourced solutions, it’s important that they complete thorough vendor due diligence, especially on third parties that host their sensitive data. Additionally, funds should have strong cybersecurity measures in place and make sure that their service providers are held to the same standards.

No one is completely invincible from a data breach, but robust communication systems and strong cybersecurity policies will make a firm much more capable of withstanding one.