InvestTech in 2024 - Setting the Stage for A Thriller

2024 - the year of technological transformation, when the investment management industry's excitement about adopting technology mixes with technology firms' anticipation of delivering high growth, setting the stage for a thriller. Get your tickets and your favorite popcorn ready!

While we wait for this thriller to load, let’s start with the stage location. The category of FinTech is all-encompassing, covering Payments, Banking, Wealth Management, Capital Markets, etc. But let’s delve into the specific definitions:

What is InvestTech? We define InvestTech as the technologies created for the investment management segment, or the ones developed for and purchased by asset allocators / asset owners.?

What is AssetTech? ?Another segment of Fintech which covers technologies built for the asset management industry and asset managers. A special category targeting private markets has also emerged in recent years and PE Stack/Holland Mountain does a great job of tracking these firms.

What is WealthTech? Technologies built for wealth managers, financial advisors, and a special segment of B2C for retail investors.

What is MarketsTech? Another FinTech segment where technologies focused on capital markets and included.

What is ESGTech? Technologies that provide product offerings for the ESG value chain, from data capture, offset and tax credit, to analysis and reporting.

What is RegTech? Technologies that help manage compliance with industry regulations, as well as document necessary controls and regulatory best practices.

What is Cyber Security Tech? Technologies that help secure infrastructure, networks, applications, and reduce the overall attack surface. Deep fake techniques, wire fraud, ransomware, data security especially with LLMs are top-of-mind topics for investors for their own and the operations of their asset managers.

Let’s start with InvestTech in 2024

This is the 8th iteration of our blog series, where we share our narrative on InvestTech from the vantage point of supporting over 150 clients in the investment management space. So let’s begin exploring the storyline for the thriller! But first, here’s our latest map:

The InvestTech moonshot

The InvestTech moonshot represents an extraordinary opportunity, often underestimated. The target addressable market (TAM) is huge, but it’s also massively fragmented and heterogeneous. Growth rates for tech firms may be challenged as distribution is expensive and the industry comes with high substitution costs. However, with the right distribution, hyperscale can be achieved.

As one of our investors aptly describes it, distribution in InvestTech is akin to creating an oil pipeline where upfront investment delivers long-term hyperscale outcomes. In investment management, a moonshot is an outcome of both technological and distribution breakthroughs.

Will profitability win over moonshot considerations?

With current interest rates, the cost of capital has increased, and global uncertainty has continued to reign risk-taking capabilities.The focus for many InvestTech firms has shifted towards profitability.

While profitability is undoubtedly essential for sustainability and resilience, it's imperative not to lose sight of the transformative potential that lies within moonshot ventures. Balancing the pursuit of profitability with the daring pursuit of groundbreaking innovation is the hallmark of visionary leadership in the InvestTech sphere.

Industry consolidation and strategic M&A to continue

2023 continued to see the trend from 2022.

• Aumni acquired by JP Morgan
• Carlyle and Insight Partners acquire Exiger?
• Caissa and Burgiss merged, and MSCI completed the acquisition of Burgiss
• Motive Partners take a majority stake in With Intelligence
• SEI acquires Altigo
• With Intelligence acquires Folio Metrics

AI - revolution, confusion, delusion, and everything else

Nothing in tech has been as impactful as the buzz created by ChatGPT and LLM in the past twelve months. This buzz is created by the following factors, but large-scale success will need patience.

• Individual use of ChatGPT has demonstrated at scale that machines can understand language and have intelligent conversations with humans. As a result, short-term expectations for industry-specific functionality use cases have soared, leaving tech buyers underwhelmed with current market offerings.
• There is limited appreciation for the long-term transformative power which is a function of time. There will be over 1000 industry and use-case-specific GPTs in the next twelve months, signaling the continued evolution of AI / LLM technology.
• The fear factor manifests in two ways: with fear of becoming obsolete (FOBO) as technological evolution and AI advancements raise concerns about the future of human labor, while the fear of missing out (FOMO) drives the desire to be part of cutting-edge GenAI conversations.
• Tech firms are leveraging the AI buzz to gain a competitive edge in marketing, yet struggle to meet the high expectations set by this hype.
• Moreover, the seamless streaming of data, crucial for the success of AI applications, remains a challenge within investment offices, further delaying the scalability of AI applications. Microsoft Copilot holds an advantage in this regard, benefiting from data residing in the Microsoft environment.

The modern data ecosystem will become a lot less rare

Asset allocators have long been associated with data silos, batch processing, manual data entry, and reliance on outdated tools like Email, Excel, and Word. However, these antiquated practices are gradually being dismantled. Investment systems, operational due diligence (ODD) technologies, ESG data, legal data, finance, and operations information are converging to form a cohesive data ecosystem. This integration facilitates high conviction investment decisions and yields differentiated outcomes, ushering in a new era of efficiency and effectiveness.

As the asset allocators and investors embrace this innovation, tech firms must also deliver on interoperability and integration. This theme has been recurrent in our recent blog iterations. As a reference, we invite you to check out our whitepaper on various data flows that DiligenceVault supports with 20 different data collection use cases and a 360-degree view of our integrations.

Good users will help create great technologies - always!

Their inputs are paramount to great technology builds. The dynamic interplay between users and tech firms, coupled with a robust product vision, is essential for delivering a superior technological experience.

Over the past year, at DiligenceVault we have flexed the muscle of user feedback at several levels:

• Tracking usage patterns through embedded analytics to pinpoint the most valuable features and areas of friction.
• Diligently gathering user feedback via client success and sales channels, resulting in over 200 feedback submissions and the delivery of 100 impactful user stories.
• Scaling our User Advisory Boards to provide insights and influence the future product roadmap.

As the pace of technological advancement accelerates, fostering close client relationships becomes increasingly crucial. By prioritizing client intimacy, we can create highly valuable and scalable experiences that delight all stakeholders involved.

Necessities of exponential shift

Historically, major technological shifts occurred roughly every 7 to 10 years. However, in today's landscape, the exponential growth in both the volume and complexity of data is outpacing this timeline. This rapid expansion means that the existing technology stack often hits its limits before the end of the decade.

Moreover, relying solely on standalone technology solutions may not provide a comprehensive picture of the evolving landscape. Interoperability, the ability for systems to communicate seamlessly, becomes crucial. Additionally, the capability to access usable, timely, and actionable data is paramount. Embracing AI-embedded decision analytics, which rely on accurate and relevant data inputs, further enhances the value that technology can deliver.

The pace of innovation required to drive these solutions and leverage the right datasets may compel tech firms to disrupt themselves. While this decision can be daunting, it's essential for staying ahead in an ever-evolving technological landscape. Embracing disruption allows firms to adapt to changing market dynamics and maintain a competitive edge in delivering innovative solutions.

Private markets value creation - front, middle, and back

• In the current environment, easy returns are facing hurdles and investors and allocators in private equity funds are looking for ways to exit, creating impetus for secondary investing (both LP and GP led).
• Next, as per Apollo’s Trends in private markets going into 2024 publication, despite the relative growth of $8tn over the past decade, private capital still represents only 5% of the global financing markets, which indicates the growth potential.
• Private markets investing is often associated with Excel, with over 72% of private capital jobs requiring proficiency in Excel data operations and modeling. However, there is a growing need for tech-driven solutions to disrupt and streamline these Excel-driven processes.
• Moreover, private capital managers are expanding their reach into wealth and retail distribution, with firms like iCapital, Moonfare, Opto, Gridline, and Dot investing leading the charge in alternative distribution strategies.
• Additionally, the investor subscription process is undergoing digitalization. We watch with fascination as we see firms such as Altogo, Anduin, Flow, Ontra, Passthrough, and +Subscribe build value for LP-GPs in an exact opposite workflow that DV started with.

The InvestTech thriller isn’t possible without the producers that finance, and directors who implement?

The plot is ready, actors are signed up, but the tech firms will need two things to deliver on the anticipated release of the thriller:

Like producers in a blockbuster film, the investors provide the essential capital investment that propels the storyline forward, turning ambitious ideas into tangible realities.

These investors come in various forms, ranging from traditional venture capitalists, to private equity firms, to strategic investors. In 2023, a blend of existing and new investors stepped onto the scene, injecting fresh energy and resources into the InvestTech ecosystem. Their involvement serves as a testament to the industry's potential and underscores the confidence in the transformative power of technology within investment management.

Next, to ensure the success of this thrilling journey, it's not just about the plot and the actors; it's also about the critics' reviews, the seamless implementation, and widespread distribution. That's where investment technology consultants and managed service providers step into the limelight

These firms act as strategic partners, collaborating closely with tech firms and investors alike in bringing the excitement for technology to life. With their deep expertise, they adeptly navigate through user pain points, recognize the necessity for a modern data ecosystem, and appreciate the significance of interoperability, among other critical factors.

They play a pivotal role in selecting, migrating, and implementing new technologies, transforming visions into reality.?

The merging of storylines of RegTech, ESGTech, Cybersecurity tech promises to inject extra excitement in the mix

Regulatory bodies are taking bold steps to bolster oversight in asset and investment management around oversight ,heightening scrutiny on risk management, investor disclosures, and reporting standards. Consequently, RegTech has emerged as a pivotal area of focus for investors seeking to navigate this evolving regulatory landscape.

Simultaneously, the specter of cybersecurity looms large in investors' minds, not only as a means to mitigate risk but also as a lucrative investment avenue in its own right.

ESG Tech is yet another overlap with the investment ecosystem. With climate tech and climate infrastructure as key investment opportunities, coupled with increasing regulatory emphasis on ESG compliance, investors are confronted with a multifaceted landscape demanding keen attention and careful? navigation.

What comes next in an industry which is already big and messy? Where is the thrill in crafting the next big breakthrough??

With each leap in technology, we not only redefine markets but reshape how we approach our work. As we gaze into the horizon of 2024, we're met with a plethora of possibilities and a cast of characters eager to drive innovation forward. Will the investment and operational processes of yesteryears hold sway, or are we on the cusp of a seismic shift that will revolutionize how data, technology, and human interaction converge in InvestTech?

Our insights are disparate as? they're the threads of a tapestry we've woven through our? experience and experimentation. They've guided our decisions and paved the path for our journey into 2024 and beyond. But remember, our narrative is but one chapter in this ever-evolving saga, and we would love for? you to join us in shaping the plot of tomorrow. So, grab your popcorn and buckle up - because the thrill ride of innovation has only just begun!

Thank you Team DiligenceVault, our clients, industry influencers, and friends for your review in refreshing the 2024 InvestTech map. If you'd like to add your firm to any of the InvestTech, Investor & Backer, or Database & Consultants maps, please email [email protected]

Do read about our InvestTech musings since 2017 :).

2023: 2023 a Year of Thinking Big and Bold

2022: InvestTech Moments in 2022

2021: The Age of InvestTech

2020: Top 10 Creators of InvestTech Unicorn

2019: And The Next InvestTech Unicorn Is...

2018: The Rise of Integrated InvestTech

2017: Who Defines the Future of InvestTech