A Bank of America survey reports that Gen Z and Millennials are three times more likely to invest in alternative markets than older generations. These digital-first and tech-savvy investors require a different way of communication—real-time access, updated and accurate information on their investments.

And it’s not just Gen Z. Today’s investor demands real-time performance data, comprehensive ESG insights, and a smooth communication experience. This is especially important in the alternative investment industry, which is less regulated and lacks standardized performance metrics.

But, intricate fund structures, regulatory hurdles, and fragmented reporting systems create investor communication gaps which may result in transparency and trust issues.

This guide highlights key challenges in investor communication and explores opportunities for improvement.

Challenges in Investor Communication

Financial data can be complex, and investment managers may struggle to communicate with different investors. Here are some reasons investor communications in the alternative markets may be challenging.

1. Regulatory Complexity

80% of investors believe information is very relevant to their investment analysis or decision-making– creating a need for increased levels of reporting and transparency.

However, investor communication in the alternative investment industry is guided by strict regulatory requirements that require greater transparency, comprehensive reporting, and standardized disclosures. These include:

  • • SEC Private Fund Adviser Rules: Require investment advisors to share a quarterly report for every private fund they directly or indirectly advise, annual audit, and obtain fairness or valuation opinions relating to adviser-led secondary transactions.

  • • FATCA: Obligates foreign financial institutions to provide information on foreign assets held by their U.S. account holders or subject to withholding or withholdable payments.

Fund administrators must invest heavily in systems and personnel to manage compliance effectively.

Inefficient Onboarding Processes

A Fenergo survey found that 74% of firms experience investor abandonment due to prolonged and inefficient onboarding.

Inefficient onboarding processes can impede capital deployment and strain investor relationships from the beginning. Manual onboarding procedures, immense paperwork, and extended timelines load unnecessary weight on fund reporting for investors and fund managers. 

Additionally, the lack of digitized, automated solutions may attract regulatory enforcement action and ensuing reputational damage. In private equity (PE) and venture capital (VC) investments, efficient onboarding promises transparency, trust, and lasting relationships.

2. Transparency vs. Confidentiality

Investors demand more intensive reporting transparency as data-driven investment decisions rise. In fact, 86% of LPS believe improving transparency and clarity over investment timing and distribution is vital. 

PE and VC firms must balance this with safeguarding proprietary investment strategies, deal structures, and portfolio data. But, finding this balance still remains a challenge. 

Unlike public-market investments, PE and VC firms generate value through deal origination, transaction fulfilment, capital structuring, and cost-cutting. Revealing too much about portfolio valuations, fund performance, or exit strategies can expose the firms to competitive risks or possible litigations.

3. Data Management and Reporting

Institutional investors expect detailed, standardized, real-time data on fund performance, risk metrics, and deal activity. Fragmented reporting systems and irregular methodologies reduce smooth investor communication. 

This creates more pronounced inconsistencies when assessing complex strategies or comparing funds across regions. The outcome is a loss of investor trust, possible regulatory hurdles, and trailing competitors.

4. Investor Expectations and Trust

Investors’ expectations transcend financial returns. Investors expect personalized communication, ESG transparency, and predictive analytics to steer their capital allocation. In fact, 89% of investors review ESG considerations when making investment decisions. With tailored insights, investors can make an optimal selection based on risk appetite, portfolio exposure, and long-term goals.

5. Illiquidity and Long-Term Commitments

Alternative investments often have an extended investment outlook. For example, a private equity fund has a life cycle of 10-12 years, an illiquidity that can hinder investors looking for a more flexible capital allocation.

Although secondary markets for private fund interests have grown to $108B transactions, they remain less efficient than public exchanges. Their discounts range from 10-30%, reducing the appeal of early exits.

6. Technology Gaps

Despite the shifts in financial technology, many private equity firms still depend on obsolete systems, such as spreadsheets and email, for investor communication. KPMG reports that 47% still use spreadsheets to manage their ESG data.

Technology gaps in Alternative investments

Credit: KPMG

This manual process raises error risk, reduces scalability, and limits real-time data accessibility.Still, lack of digital integrations leads to delayed reporting, creates inefficiencies, and causes poor investor experience.

Opportunities in Investor Communication

Leveraging Technology for Better Reporting

Automation can improve investor communication, making reporting more accessible, transparent, and efficient. Technology like RAISE refines fund reporting. With RAISE, you eliminate manual financial data handling and errors and ensure real-time access to performance metrics. You join the 74% of private equity-backed companies that already leverage AI solutions in their transactions.

In addition, blockchain is gaining momentum in alternative assets because it can offer mutable audit trails and real-time validation. Private market firms can explore blockchain for fund administration to improve transparency in capital flow and fee structure.

Unified Platforms

Unified platforms consolidate multiple communication channels, data sources, and engagement tools into a single system. They provide a centralized hub for sharing updates between investment firms, fund managers, and investors.

A unified system like RAISE integrates with your CRM and other reporting tools and fund administration to streamline data flow and lower manual interceptions. This helps your investment firm boost transparency, lower inefficiencies, and deliver a more engaging investor experience.

Personalized and Data-Driven Communication

Since investors increasingly demand real-time access to fund performance and customized communication, traditional reporting is no longer adequate. Modern investor portals like RAISE offer on-demand access to portfolio data, distribution, and capital calls.

With AI-powered predictive analytics, investor communication can be personalized based on historical engagement patterns. And 73% of PE investors have seen it drive significant value for their company.

ESG and Impact Reporting

ESG factors are a major decision-making yardstick in private equity communication. In particular, 79% of investors say a company’s ESG risks and opportunities management is central to their investment decision. 

Integrating transparent, data-focused ESG reporting helps you meet investor expectations and regulatory demands. Regulations such as the Sustainable Finance Disclosure Regulation (SFDR) and the SEC’s climate disclosure rules ensure your ESG reporting is verifiable.

A survey by PREQIN shows that ESG-focused funds perform better than non-ESG funds, adding more emphasis on ESG reporting.

ESG and Impact reporting in alternative markets

Brand Communications

Brand perception attracts potential investors and secures long-term commitments. Thus, firms should craft a compelling narrative that strengthens credibility and builds trust and differentiation. Multi-channel engagement through investor portals, webinars, social media, and email updates provides a consistent brand image.

Try the Future of Investor Communication

Transparency, technology, and trust-building will shape the future of investor communication in alternative investment.

RAISE epitomizes this shift. It offers a next-generation investor communication platform with automated reporting, smooth investor interactions, and data-focused insights. It also helps firms adapt to changing regulatory and investor expectations, ensuring accuracy and efficiency.

Whether you’re managing hedge funds, private equity, real estate, private debt, infrastructure, or commodities, RAISE makes the process seamless.

Book a call now and let us scale your alternative investment firm.

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