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Eliminating Manual Processing in Alts: Millennium Trust’s McCartan

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The use of alternative investments is increasing—big time. But as usage increases, so, too, do the hours that advisors find themselves devoting to the manual processing and reporting of data related to these investments.

In fact, according to a recent survey conducted by ByAllAccounts and Millennium Trust Company, manual processing is the order of the day. A full 65% of hedge fund users spend 3-4 or more hours per reporting cycle manually collecting and reporting on each individual hedge fund. The same holds true for private equity/capital commitment funds.

Equally revealing, over half of the survey responders said they may be more likely to use alternative investments if they could cut down on reporting hours.

These statistics tell a story, wouldn’t you say? They’re precisely why I reached out to our survey partner, T. Scott McCartan, CEO of Millennium Trust, to get his perspective on the manual data collection challenge and Millennium Trust’s part in solving it. 

History Is Repeating Itself
I asked McCartan why manual processing is such a big issue with alternative investments. He points out that the use of alternative investments has increased substantially over the last 10 years, far outpacing the processing of the investments themselves—from purchase to administration to sale. This disparity continues to grow. 

 “In a sense, it’s not too different from what happened in the stock market in the 1970’s,” says McCartan, “when volume increased but trade settlements relied on paper, to the extent that the exchanges closed on Wednesdays to clear up the morass.” Since alternative assets do not trade through electronic trading systems, McCartan says, the result is that “iit remains a manual and paper-oriented process.” 

To illustrate his point, McCartan uses a house-buying analogy, “Just about everyone has purchased a piece of real estate,” he says, which is, after all, an alternative investment. “So they have direct experience in the amount of paperwork and manual administration that is involved. The majority of alternative investments have worked the same way.” 

It’s an excellent example. Considering the massive volume of alternative investments—“the values are easily in the multi-trillions with thousands of discreet investments in each category,” per McCartan’s phraseology—it’s clear we’re talking about paperwork and an allocation of person hours that are truly vast in scope.


Solutions in Sight—and in Demand 

“While an electronic exchange for alternatives isn’t in the near future,” McCartan says, “the use of technology can be applied to a number of tasks that can make this process a lot easier.”

These measures include the use of electronic applications and electronic signatures, which would not only reduce the amount of paperwork, but would also help reduce the human error that’s been an inherent part of the administration of non-traditional assets. 

McCartan describes how the amount of time spent on reporting valuations can be solved electronically through a central collection enterprise. In addition, he predicts, “the use of electronic documents, including offering memorandums or subscription agreements, is growing and will become the mainstay in the years ahead.”

Due Diligence, Client Education 

Survey responders cited due diligence and self education as additional significant challenges. They also said that client education and willingness to invest were major factors in determining whether alternative investments are used. 

To meet the self-education challenge, Scott recommends dividing up the alternative investment asset class into major categories, which can be found on Millennium Trust’s or a comparable website. Then, for additional details, contact the investment sponsors directly. 

He also suggests that advisors may wish to check with local and government agencies such as the SEC or FINRA to verify the backgrounds of those offering the investments. 

ByAllAccounts and Millennium Trust Company are discussing how we can significantly reduce the manual work involved with alternative assets. As McCartan states, “We both agree that there is a big opportunity to improve the reporting of alternatives to meet the growing demands to provide greater transparency to their advisors and their clients.” 

I heartily concur. 

Click here to access the survey: 2013 – A New Era of Transparency for Alternative Investments? Understanding and Eliminating Manual Data Collection Challenges.


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