Survey: New leaders plan to invest in talent and FinTech in 2023

Opal Industry Update, for New leaders – Alternative investments FinTech Dynamo Software has published the results of a new survey, Trends, challenges and insights from leading emerging managers.

Through March 2023, Dynamo surveyed leaders across the global Emerging Manager market. Participants represented a diverse set of funds, including private equity, venture capital, hedge funds, corporate development, real estate, fixed income, small-cap public equity and private credit.

“The new leaders we surveyed have a clear vision to move quickly from scrappy upstarts to industry titans,” said Dynamo Software CEO Hank Boughner. “Despite the ebb and flow of the market, they are aggressively chasing healthy returns, chasing both unicorns and camels.”

The research, contextualized in the Dynamo Frontline Insight report, uncovered several notable investment, talent and technology strategies being implemented by leading emerging managers today.

Top talent priority for growth

To succeed in a tough economic climate, Emerging Managers prioritizes the acquisition of top talent. Survey participants identified “increased internal headcount” as the top investment area to drive fundraising efforts over the next 12 months.

Like their larger GP counterparts, Emerging Managers doesn’t seem to want to generate fee income for additional dollars to pay top talent. The same percentage (88%) of GPs Dynamo surveyed in February and Emerging Managers surveyed in March indicated that their fee structure would remain the same for the next 12 months.

Rather, cost reduction appears to be the strategy. “Creating efficiencies and optimizing workflows,” “total cost,” and “empowering the entire team to leverage technology” topped the list of reasons new leaders are implementing technology. Operationally, “removing manual data tasks and introducing automated workflows” ranked as top priority.

FinTech strategy

After “increased internal headcount”, two other key areas of investment were “third-party data providers” and “technology platforms”.

“It was affirming to learn that new leaders see value in FinTech and data partners,” said Boughner. “That’s what drives our team to iterate continuously and quickly, as there are new types and sources of data available every day. In close consultation with our customers, we identify and integrate this data quickly. Perhaps just as importantly, we invest in development which facilitates the smoother flow of data through Emerging Manager’s technology stack, which is growing higher by the minute.”

Given the prioritization of data and FinTech, it is no surprise that Emerging Managers indicated that they will not be pulling back on their technology budgets. In fact, more than half (51%) expect technology budgets to increase over the next 12 months. Another 48% said their budgets would remain the same.

The three solutions that received the most votes for future inclusion in the Emerging Manager technology stack were “fundraising and marketing” solutions, “deal management and CRM” and “investor relations” solutions.

Weighs investors’ ESG focus

With Deutsche Bank, Bloomberg and PWC all forecasting ESG assets to exceed $100 trillion in five years, more than four in 10 Emerging Managers surveyed by Dynamo expect investors to increase ESG and DEI reporting expectations over the next 12 the months.

This may be due to the type of investors Emerging Managers find success with, beyond the best institutional investors. Over the past 12 months, a significant number of Emerging Managers have raised the most capital from the private wealth segment, with 32% raising the most from high net worth individuals and 21% raising the most from family offices.

“Institutional investors will continue to be a core category for investment in new managers, but as more disclosure requirements come in and the barriers to obtaining data lower, private investors will receive more benchmarks and be empowered to ask more questions,” explained Danielle Pepin , Dynamo’s head of product, portfolio monitoring and valuation. “Although the layers of fiduciary duty and external accountability are fewer for private wealth, progress against goals must still be reported, and these goals increasingly include non-financial metrics. Family offices, in particular, are eager for data to demonstrate the success of their ESG and DEI-focused investments.”

Still, investors who trust Emerging Managers with their money exercise caution when it comes to early opportunities. Only 13% of these investors are willing to allocate more than 75% of their capital to new investment vehicles. About six out of 10 investors will not allocate more than 25% of their capital to new vehicles.

The findings of the new survey come on the heels of two further pieces of Dynamo-led primary research, an October 2022 survey of Limited Partners (LPs) and asset allocators and a February 2023 survey of General Partners (GPs).

Dynamo Software’s mission is to be the leading global, end-to-end cloud software platform for the alternative ecosystem, serving the information sharing and analytical data needs of our constituents.

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