As we have entered an economic era defined by high inflation and rising rates, it comes as no surprise that institutional asset managers are increasingly looking to add to their allocations in multiple alternative asset classes in search of stronger returns.

In this piece, Jonathan Flitt, Global Head of Alternative Investment Solutions at Clearwater Analytics, explains why the push into these alternate assets is not without its challenges.  

The biggest challenge currently facing asset managers and owners when investing in alternative assets is around the quality and quantity of data. In a recent survey that we conducted of firms representing over $5 trillion (£4.1tn) in AUM, four fifths of respondents found availability of data on alternatives a challenge, whilst just over 70% saw data quality as a problem.

This comes as no surprise given the often illiquid nature of private market assets such as real estate and private debt, where market data has not been an area of big business historically. However, as investors increasingly seek out assets that can offer higher yields in this challenging economic environment, their internal data infrastructures need to be up to scratch.

With so many diverse sources of information, managing data to ensure it is clean and fit for use is of paramount importance to asset managers right now. This doesn’t even account for the fact that these institutions often have multiple different legacy systems across the business, resulting in a situation where there is no uniform view of important underlying data.

Due to the nature of their business, many insurance firms will have internally set limits on how much of their portfolio can be allocated to alternatives – to prevent over-exposure to more volatile assets that could result in significant material changes to their portfolio value over a short space of time. This means that firms need to have a highly accurate system that is always running, to offer real time updates on holdings.

This points to another factor – investors are constantly demanding more granular insights into how their investment portfolios are performing. In the same survey, over 80% of respondents reported that they struggle with the ability to manipulate data on alternative assets. This is an issue, as to get client statements out in a timely fashion, asset managers need to be able to pull this kind of information into a clean and client facing report quickly – the trouble is though that many are still doing this manually. In this information age, you need to be able to easily access aggregated data from multiple trading platforms to provide fully reconciled, validated and visually appealing data to investors on a regular basis.

It is high time that asset managers addressed these key data issues if they are to effectively increase their allocations to alternative asset classes and take advantage of the higher yields on offer. This has perhaps never been more important as we enter into a period of record low bond yields, characterised by ever increasing inflation and tightening central banking policies. Only by harnessing the data underpinning these assets, will asset managers be in the best position to deliver increased returns for their investors.