The Third Annual LP Frontline Insight Report Explores Asset Allocator Strategy and Sentiment for Next 12 Months

A global survey of Limited Partners (LPs) and asset allocators, now in its third year, identified several noteworthy trends and strategy adjustments among the participants. Considered as a whole, the findings underscored the desire of LPs to remain agile and efficient amid their reported concerns around ongoing economic uncertainty and strong competition for high-performing assets.

Findings from the survey, published through a partnership between Dynamo Software and Northfield Information Services, are contextualized in the “Dynamo Frontline Insight Report: Analyzing Trends, Identifying Challenges and Harnessing Insights from Leading LPs & Asset Allocators.”

Hot for ALTS, Lukewarm on Cryptocurrency

The overwhelming majority of LP participants planned to either increase (52%) or maintain (45%) their allocation to alternative investments (ALTS). For the past three years, at least 50% of LPs surveyed planned to increase ALTs allocations every year.

Interest in fund managers and co-investments are growing, as the two most popular reported methods of planned ALTS investments at 72% and 51%, respectively. Although derivatives (18%) and cryptocurrencies (8%) came in last place, each experienced a year-over-year increase in interest, from 15% and 3%, respectively.

“The marginal increases in these two financial instruments may indicate a desire for greater risk management,” said Hank Boughner, CEO, Dynamo Software. “LPs can consider investments in things like derivatives and cryptocurrency as a way to hedge against market volatility.”

Attitudes about AI Depend on the Use Case

A significant portion of participants indicated escalating intrigue in AI—mainly as a category for ALTS investment vs. as a business enabler for their own firms. When asked in which areas LPs would like to see their tech-focused fund managers invest, Generative AI was the clear winner, named the most important category by 41% of survey participants. GenAI was followed by edge computing, a rapidly growing technology that is expected to play a significant role in the next phase of digital transformation.

Interestingly, however, “AI features” came in last place for LPs as they ranked the components most important to them when implementing a new technology.

Automation, on the other hand—often considered a high-value outcome of AI—ranked high among LP priorities. Automating manual processes ranked among the top three challenges LPs face, alongside managing through economic uncertainty and managing key relationships.

“What may be showing up in the survey results is a skepticism toward technology marketed broadly as ‘AI,’” said Boughner. “LPs may be less interested in the particular components of a tech solution, and more interested in how the solution can actually help their teams work faster, smarter and with greater predictive analysis.”

Further insight into the ALTS community’s perception of and plans for AI will be available soon. Dynamo’s first quarterly report on AI sentiment is scheduled to be released in early November 2024.

Enthusiasm for tech solutions that address LPs greatest challenges persists. Intentions to increase LPs tech budgets saw a notable jump year-over-year, with 57% of participants saying they plan to put more money into technology in 2024 as compared to the 49% who said the same in 2023.

“Over the three years we’ve been surveying LPs, we’ve seen a steadily increasing commitment to technology, with plans to increase tech spend every year,” explained Boughner. “Given the specific challenges LPs are facing, AI and automation will no doubt find their way into the LP tech stack in the near term.”

Data-driven Decision-making

Timely data access and analysis is a clear priority for the LPs polled by Dynamo and Northfield.

For instance, participants’ least favorite method for addressing the analytical challenges of commitment pacing is rule-of-thumb methods. According to Northfield’s Emilian Belev, Head of Enterprise Risk Analytics, this indicates a shift away from arbitrary and less precise methods toward data-driven, analytical approaches.

“Like many global firms across industries, LPs are increasingly leveraging data analytics to inform the development of innovative strategies and enhance the accuracy of reporting,” continued Belev.

Additionally, LPs named document collection and data extraction the No. 2 biggest challenge to their current investment processes. This is likely due to the increasing complexity and diversity of investment portfolios that includes larger ALTs allocations, for which data can come in a wide variety of unstandardized formats.

“As more sophisticated investment strategies, like co-investments and secondaries, come into play, LPs naturally need deeper insights and more transparency into portfolio components,” said Dynamo’s Boughner. “Robust data analytics is about more than visibility into performance. Ultimately, it’s about gaining the intelligence you need to be in greater control of your assets.”

Many more insights into LP trends and sentiment are available in the complete report, “Dynamo Frontline Insight Report: Analyzing Trends, Identifying Challenges and Harnessing Insights from Leading LPs & Asset Allocators.”

Sept. 25th Webinar | Unlocking Frontline Insights

Dynamo and Northfield will host an exclusive industry webinar exploring key trends in investment strategies, tech adoption, and market conditions from third annual LP Frontline Insight Report. The webinar will feature insights from experts Emilian Belev (Northfield), Scott MacDonald (Capital Allocators), and Hank Boughner (Dynamo), each offering analysis and strategic takeaways from the research. Register today to secure your spot.

About Dynamo’s Frontline Insight Reports

Published quarterly, Dynamo’s Frontline Insight Reports contain primary research obtained through online surveys of targeted alternative investor audiences. The survey results are contextualized by Dynamo subject matter experts in formal Frontline research reports. To date, Dynamo’s research team has focused on delivering noteworthy insights related to the attitudes, predictions, and strategic plans that Limited Partners (LPs), General Partners (GPs), Hedge Funds, and Emerging Managers have on a number of alternative investment topics. To learn more about Dynamo’s research reports, visit the Resource Library or contact media@dynamosoftware.com.

About Dynamo Software, Inc.

Dynamo gives alternatives investors a Performance Edge, empowering them to efficiently scale their firm to capitalize on the growing wave of private market opportunities. With the Dynamo Alternative Investment Platform, Limited and General Partners can now run a tightly integrated firm, putting all their data to work to accelerate operations across front, middle, and back office, unleashing teams to work smarter, and allowing leaders to make better investment decisions and scale their firm. Dynamo has a global footprint with operations across North America, EMEA, APAC, and UAE. For more information, please visit DynamoSoftware.com.

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