Elevating Fund Administration Valuation Through Applied AI || A Vision for the Future By Kumar Ujjwal
In the rapidly evolving landscape of fund administration, the integration of applied artificial intelligence (Applied AI) is not just a trend but a transformative force that can elevate service providers to the status of tech companies. Traditionally, Fund Administrators have scaled their operations by increasing their workforce. However, the future beckons a paradigm shift where technology, particularly Applied AI, will be the cornerstone of growth and efficiency.
The Current State of Fund Administration
Fund Administrators have long been valued based on their revenue growth, margin growth, client types, and the ability to create an accurate, foolproof, auditable environment. In order to achieve new heights in financial performance, Fund Administrators must also meet the challenges that come with a competitive business environment. As Bill Salus the co-founder and managing partner at Paddock Capital Markets aptly puts it, "The most important thing, the most difficult thing for a fund servicer to do is to win the next account. The second most difficult thing for a fund servicer to do is to staff up and to hire the next person." In this sense, AI techniques applied to a Fund Administrator’s technology stacks can provide the administrator with competitive distinction in the market, while affording employees an attractive, modern platform to work within.?
This traditional model of scaling by adding more bodies is becoming increasingly unsustainable. Available talent pools are thin, and it is increasingly difficult to find qualified, ambitious personnel. The administrative burden, coupled with the need for high accuracy and speed, demands a more innovative approach. This is where Applied AI steps in, offering a pathway to not only streamline operations but also to improve workflow processes and customer service levels. All of that will drive more success in new business efforts, and improve the bottom line through more efficient processing thru-put, which will no doubt significantly enhance valuations for fund administration businesses.
Leveraging Applied AI for Competitive Advantage
Applied AI has the potential to revolutionize fund administration by automating routine tasks, improving data management, and enhancing decision-making processes. According to Bill Salus, "Creating an environment with Applied AI tools is going to be more attractive to recruit from universities, recruit very early on in the cycle, in a career cycle of someone, of an accountant, for example than had to in the past."
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By integrating Applied AI, Fund Administrators can:
The Future of Fund Administration
The integration of Applied AI in fund administration is still in its nascent stages, but the potential is immense. As Bill Salus notes, "Right now, it's a little bit of the early days of buying the microwave to heat up your tea. But, you know, as the impact of AI drives beyond enhanced AI-driven query techniques, the impact it will have will be more profound on workflow processes.? Then we will see the impact at the ‘functionalization’ level, which is going to be very, very strong very soon."
The future will see Fund Administrators transforming into tech-driven entities, capable of delivering faster, more accurate, and more efficient services. This transformation will not only enhance their valuation due to the positive impact on growth as well as bottom line but also position them as leaders in the financial services industry.
Conclusion
For Fund Administrators, the path to elevating their valuation status lies in embracing Applied AI. By leveraging Applied AI to automate processes, enhance data management, and improve client service, they can transition from a traditional service model to a tech-driven powerhouse. As the industry evolves, those who adapt and integrate Applied AI will find themselves at the forefront, reaping the benefits of increased efficiency, reduced costs, and higher valuations.
In the words of Bill Salus, "AI will also allow Fund Managers to accelerate product development, and expand the ability for a manager to diversify its approach to capital raising. For example, if a private equity manager is considering raising capital from retail investors, ‘the democratization of private equity,’ the managers and their service providers like a Fund Administrator, face a myriad of operation hurdles and challenges to facilitate the investment, price the investment, perhaps tokenize the investments, and allow for flexible liquidity options, they currently have to go through hoops to get that fund paperwork just in the hand of an accredited investor just as a first step.? Applied AI is going to reduce all that headache throughout the investment lifecycle." The future is clear: Applied AI is not just an option but a necessity for a Fund Administrator aiming to scale and thrive in the competitive landscape.
Want to learn more about the state of Applied AI in Fund Administration?? Read our recent survey report conducted by Alternatives Watch with key insights from industry experts at Withum, Cole-Frieman & Mallon, and Dwell.FI. Download here: https://www.dwell.fi/news/pr-and-perspectives