Number 1: Accelerated Adoption of Technology Solutions.
The pandemic will speed up the process of implementing technology for a wide range of tasks. The better run firms have long embraced technology and its ability to create more efficient business operations. But some firms lagged behind. As Monel Amin, Founder of DiligenceVault, observed on a recent episode of my Operational Leaders podcast, the two greatest impediments to broader adoption of technology have been “Excel and apathy”.
It’s probably safe to say that the coronavirus – with social distancing and remote working requirements – has removed some of the apathy and kickstarted firms’ evaluation and adoption of broader technology solutions. Those firms who previously embraced technology likely reaped the benefits, while those a little further behind should have all the needed incentive to play catch up. Also, any additional fee pressures that result from the coronavirus could further hasten the adoption of cost-efficient technology solutions.
Look for trade processing and reconciliations, as well as interactive document exchanges, as areas that are ripe for greater automation.
Number 2: More Widespread Use of Outsourcing.
The trend toward outsourcing has been gaining momentum over the past few years. The pandemic won’t change that, but it will reinforce certain advantages of outsourcing.
Consider three key advantages. First, outsourcing (as the name suggests) can be done remotely. That’s good in a social-distancing world. Second, outsourcing offers investment firms the ability to access highly-skilled professionals, and not as employees, but on an as-needed basis. Third, outsourcing provides a certain redundancy, or second set of eyes, that gives an additional layer of comfort that processes are being completed properly.
Of course, the advantages of outsourcing presume that someone in-house is overseeing the whole enterprise. No one can be an expert in every role and function on the operational side of the business. But the key to making outsourcing successful is having one or a few people in-house with a broad enough knowledge base to make sure the firm is getting the proper services and sufficient value.
Number 3: More Challenges for Capital Raising, and the ODD On-Site Visit.
The necessity of conducting operational due diligence and the inability to access a manager’s physical location will – at least in the short run – create additional hurdles for raising capital, particularly for aspiring new managers/firms. While the industry has seen a rise in skilled ODD professionals and enhanced technology to facilitate greater remote interaction, those only go so far.
An on-site visit uniquely allows potential investors (or their ODD professionals) to observe unscripted interactions, gain full assess a manager’s physical premises, possessions, and surroundings, and make other analyses that require tangible observation.
If this initial on-site visit is dropped for new managers during this period, the accommodation may mark a permanent change in the ODD and fundraising process. If the on-site visit returns, that may call into question investments made without a visit, especially if a problem later comes to light.
In the meantime, the current environment will continue to benefit existing managers with long track records for performance, operational success, and prior ODD on-site visits.