Technology is creating substantial changes in the way we all do business, in some industries faster than others. The impact of technological disruption in the alternative investments industry, while it has occurred at a slower pace than other industries, is no different.
Many larger finance firms, with extensive resources, have been and are looking at redesigning their digital architecture. For emerging managers and high-growth firms in this space, the decision begins with whether you will invest in technology from the outset or wait for legacy challenges to arise like they have with larger asset managers.
According to an E&Y study, “Today’s private equity funds are rapidly waking up to the need to focus efforts to successfully synchronize operations with the rapidly evolving digitization…ultimately, the only way for private equity funds to break through these barriers is to invest in a fundamental overhaul of their infrastructure and operating models.”
A common misconception is that you must be a large firm to have a technology strategy. As an innovator and investor in established private small and medium-sized businesses, technology for Star Mountain Capital is at the core of our operating model with values such as innovation, collaboration and investment in long-term growth. From the beginning, we invested in technology to build our competitive advantage, including hiring a full-time Chief Technology Officer (less common in the underserved lower middle-market where many firms do not make these investments), to invest in the sustainability, scalability and user experience for the benefit of our stakeholders. Star Mountain has invested into technology and systems out of the belief that technology can provide significant competitive advantages in sourcing investment opportunities, underwriting, monitoring investments, adding value to portfolio companies, managing risk and investor reporting.
“Technology is improving many facets of the alternative investments industry and making it easier for managers to access and support new pools of investor capital in a streamlined and efficient way,” said John Robertshaw, Co-Founder and Special Advisor to iCapital Network, a financial technology platform that provides modular alternative investment solutions to advisory professionals and the high-net-worth community. John is also a personal limited partner investor in Star Mountain and former Vice Chairman / Co-Head of the Private Funds Group (PFG) at Credit Suisse from 2004 through 2013, during which time PFG represented 170 funds raising in excess of $250 billion.
However, there is still a lag in technology adoption among top executives, leaving a gap in innovation and opportunity for new players. According to a whitepaper on private equity and digitization by Strategy& “There is still a largely untapped area that offers extraordinary opportunities for value creation, but most private equity firms – in fact, most investors – aren’t fully aware of the potential here and therefore aren’t yet asking the right questions.”
Part of Star Mountain’s culture of continuing improvement through training and technology comes from my ongoing learning and team development experiences, including (i) as a member of the Young Presidents’ Organization (YPO), (ii) living on campus at Harvard Business School for 3 weeks each time, for 3 consecutive years to complete the Owner / President / Manager program, and (iii) programs such as “Building Your Business Through Transformational Leadership & Innovation” at the University of Michigan’s Innovatrium. One of our principles is that executives should surround themselves with other strong leaders that bring unique capabilities, which is why we have sought highly sophisticated investors and specialized industry advisors.
Star Mountain has developed a technology oriented advisory board which includes executives such as Karl Alomar, a serial tech entrepreneur who has built and sold several companies and is currently the COO of Digital Ocean, providing innovative cloud-based solutions for technology developers world-wide. Karl has helped raised over $300 million, in debt and equity, since inception from companies such as Star Mountain portfolio fund Trinity Capital, Andreessen Horowitz, Fortress, KeyBanc, Access Technology Ventures and IA Ventures. “Star Mountain recognizes the value and opportunities in leveraging technology to build substantial competitive advantages which I am honored to be aligned and assisting with” said Karl Alomar. Star Mountain also recently announced the addition of Isaiah Kacyvenski, former NFL Seattle Seahawks Special Teams Captain, Harvard Varsity Club Hall of Fame member and current Co-Founder and Managing Director of the Sports Innovation Lab, as an Industry Advisor focused on the intersection of health & wellness, sports and technology.
While the decision to prioritize in-house technology investment can be made today, the results of such investment may take time to generate measurable results. One near-term strategy is to leverage the expertise and scale gained through collaborating with “smart outsourcing” partners. According to SS&C Technologies (Star Mountain’s fund administrator with over $1 trillion of assets under administration) “whereas once private equity accounting was largely done on Quickbooks or Excel and then subsequently by client-server applications run locally…the future is web and mobility on tablets, handhelds, e-readers…the ability for portfolio managers, key operations personnel and others to access information anywhere, anytime exists today more than it ever has.”
It is clear that the technology revolution in the alternative investment space is here, but its full potential has yet to come. Technology disruption has the potential to, over the medium-term, gradually dislocate dominant players who don’t evolve and catapult emerging firms into leadership positions which Star Mountain believes it is doing. To be on the winning team, investment firms need to remove themselves from complacency, make larger investments into technology and attract the human capital that embraces the idea that technology must be at the core of a firm’s operating model. To learn more about disruption in technology across industries, including finance, the Star Mountain team recommends reading: The Industries of the Future, by Alec Ross; The Inevitable: Understanding the 12 Technological Forces That Will Shape Our Future By Kevin Kelly; and Innovation and Its Enemies: Why People Resist New Technologies By Calestous Juma.