Three Technology Considerations for Enhancing Operations and Transparency in Alternatives

Building a solid framework for managing alternatives can help support insurance companies’ fiduciary responsibilities, ultimately leading to greater confidence in a highly specialized, complex asset class.

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Market practices in alternatives investing have not changed much since the 2008 credit crisis. Large allocations to opaque, illiquid assets are still the norm. As alternatives have become more mainstream, insurance companies will need to consider how technology can enhance transparency, improve operational efficiency and help demonstrate confidence to regulators and investment stakeholders.

Too often efforts to aggregate, compile and distribute data lead to just-in-time delivery with little or no time for meaningful analysis. Transparency in alternatives investing will only become a bigger part of investors’ everyday lives. Three technology considerations can have a big impact on the level of success insurance companies can expect when managing operations and administration for alternatives programs.

Technology Infrastructure

Many insurance companies retain their data management functions in-house and rely on siloed or redundant platforms to collect, integrate, analyze and report data. Disparity among systems forces endless importing and exporting via spreadsheets to accommodate multiple data types and sources. The potential for data errors and inconsistencies increases with manual data work. As the regulatory environment continues to evolve, data accuracy has become more important.

For enhanced alternatives transparency, insurance companies will need to rethink their IT infrastructures across business lines and geographies to better integrate across platforms. Quick access to data—and seamless transfer of information among systems—is not only crucial for reporting, accounting and analysis, but also understanding exposures and streamlining operations.

Flexibility and Scale

To enhance alternatives transparency, insurance companies—and the technologies they use—need flexibility. Fast performance and modern functionality are important, but arguably more important is the ability to ingest vast quantities of data from disparate sources, and then drill down to view performance information. In addition to risk management, flexible technology can help enhance alternatives transparency in other ways.

  • Consistent, high-quality data that can be relied on for decision-making
  • Quicker access to data in the formats needed to adequately meet deadlines
  • Ability to adapt to new products, regulatory requirements and accounting standards

Custom Analytics and Reporting

Developing insights about alternative investments, not just piles of data, leads to useful narratives that can signal what decisions to make, when and why. For technology to act as a decision-support tool it should enable analysis of vast quantities of data, otherwise insurance companies will find themselves with costly information management challenges.

As an additional layer of transparency, custom analytics and reporting help insurance companies focus on underlying exposures that better prepare them to respond to detailed inquiries about investor responsibility. By understanding and reporting what’s happening beneath the surface, insurance companies can position themselves for enhanced risk and performance analysis.

  • Performance and funding analysis, including public markets equivalence benchmarking
  • Integrated cash flow, risk, analytics, performance and compliance reporting
  • Risk management such as capital call and distribution behavior, long-term funding and commitment pacing analysis

Outsourcing Fiduciary Responsibility Is not an Option

Many insurance companies choose to outsource operations and administration of their alternatives programs. Depending on staff sizes, outsourcing is an effective way for insurance companies to address their transparency challenges. Even so, fiduciary responsibilities always remain in-house—they cannot be outsourced to a third party. Building a solid framework for managing alternatives can help support insurance companies’ fiduciary responsibilities, ultimately leading to greater confidence in a highly specialized, complex asset class.

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Paul Fahey // As the Practice Lead for Insurance Solutions, Fahey leads all aspects of managing Northern Trust’s relationships with insurance companies, including their insurance asset bases as well as their defined benefit and defined contribution plans. Prior to joining Northern Trust, Fahey was the Global Product Manager for the Investor Services Group at State Street. In this capacity, Paul led large, strategic product development initiatives across multiple market segments, including collective funds, pensions, middle office outsourcing and insurance. Fahey has a M.B.A. in Strategic Management and Accounting and a B.A. (cum laude) in Business Administration, both from Boston College.

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