The COVID-19-induced lockdown has been the catalyst for an unprecedented spike in the adoption of digital channels by investors, including fund subscription solutions and the use of investor portals. It is both a watershed in investor behaviour and is good for business. Investors will not go back to paper. Hedge funds seeking ‘Operational Alpha’ will ride this wave to higher net flows and revenue, and thus far have seen a 300% growth in digital client engagement.

Since COVID-19 restrictions began in March 2020, there have been several shifts within the industry. Top-tier hedge funds are moving to 100% digital subscription solutions as the pandemic drives an unprecedented increase in the use of digital channels compared to pre-lockdown rates. COVID-19 restrictions have seen any advisor and investor resistance to executing subscriptions electronically diminish completely.

What’s more, digital adoption is permanent. Having made the switch in behaviour, investors are extremely unlikely to go back to paper.

‘Operational Alpha’

Operational Alpha is the additional margin achieved by shifting to digital, i.e. mobilising data, automating repetitive work and improving the overall client experience, which translates to increased inflows and stickier assets.

Over the past four years, there has been a steady stream of investment firms making smart investments, such as digitising subscription agreements — resulting in more assets under management (AUM) for managers. When investors and advisors can complete complex subscription agreements in mere minutes (and re-subscriptions in seconds), they are less likely to overlook the right alternative strategy simply due to the legal overhead. One Aiviq client estimates that for every dollar of inflows, it left two on the table before moving to digital, as advisors would find a similar strategy with a lower legal and paperwork burden.

A digital trial for the entire planet

Extraordinary things took place in during the first few months of COVID-19. Client engagement across digital channels has spiked dramatically, and resistance to change is disappearing. Overnight, organisations transformed thousands of office jobs into remote positions and adopted new ways of communicating en masse.

The need to keep business moving has shown investors the benefits of change, and they will continue to favour managers that can deliver. Conversely, investment firms that cannot deliver the same convenient digital investor experience during this time will find themselves starved of new business.

The reality is that investment firms going digital is rapidly becoming the new normal. Any businesses that have not yet implemented real change need to move swiftly to catch up and avoid being on the wrong side of outflows or lower inflows.

A spike in investor data access

The sheer volume of data requests received across a client base by investors and advisors is a key performance indicator for businesses like Aiviq. Traditionally, the highest volume of data requests comes in January when end-of-year statements are issued. At this time, advisors and investors are actively logging in to run analytics in their portals, calculate IRRs and investigate allocations.

However, when the Aiviq team ran the statistics for March 2020, we found an astounding 289% increase in advisor portal data access requests compared to January. April 2020 was close behind with a 259% increase compared to January (see Fig. 1).

Figure I: 'Digital Engagement Increase' Advisors – Data aggregated across our investment portal and digital subscription platform that services 30+ hedge funds

Figure I: ‘Digital Engagement Increase’ Advisors – Data aggregated across our investment portal and digital subscription platform that services 30+ hedge funds

Digital subscription agreements

During the first March lockdown of 2020, Aiviq supported one of the largest Canadian hedge funds to migrate to a 100% digital operating model. This transition meant investors and advisors no longer received local subscription agreements, but rather a link to an online subscription document portal. Now, this firm processes hundreds of discretionary, non-discretionary and direct subscription agreements each month, enabling remote, electronic execution.

Whilst there had previously been some resistance from counterparties that were not wholly comfortable with electronic signatures, the total number of counterparties that declined to sign digital subscription agreements during the March 2020 lockdown plummeted to zero.

If you would like to hear more or see a demo of how ADS can support hedge funds with digital solutions to improve client experience, automate operational activities, enable improved sales processes and remove the friction from the investment process, get in touch today.

 

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