InvestTech FTF Webinar Managing Alternatives at a Traditional Asset Management Firm (for distribution)

Managing Alternatives at a
Traditional Asset Management Firm
April 13, 2016

www.investtechsystems.com© InvestTech Systems Consulting LLC 1
Which AI assets class is your biggest challenge today?
PE
HF
Derivatives
Credit/Debt/Loans/Mortgages
Real Estate and Infrastructure
Where are your greatest AI technology gaps?
Portfolio Management and Front Office
Back Office and Accounting
Data Management
Financial or Investor Reporting
What is the next AI Asset class on your horizon?
Participant Survey Questions

Managing Alternatives at a
Traditional Asset Management Firm
Pamela Bloom, Practice Manager of Alternative Investments
Jeremy Hurwitz, President
InvestTech Systems Consulting
• Mainstream investment management firms are adding alternative asset classes
• through direct investments
• placing AI allocations into traditional fund structures
• “funds of one” and separate accounts with firms that have AI track records
• Creates havoc for traditional front, middle, and back office - trying to squeeze a loan
into a bond security type or a PE portfolio company into a traditional issuer
• What are the options - to implement another system, outsource, add more domains
to their data warehouses, etc.
• We will discuss some of the problems and solutions and begin the process of
systematically tackling the nagging questions about what should be being deployed
to help support Alternative Investments

Professional Highlights
Relevant Experience
Education
 Jeremy Hurwitz is an expert in Investment Systems Technology and Enterprise Data Management with over 25 years of
experience.
 His focus encompasses all disciplines including strategic architecture planning, data architecture design, operational
transformation, maturity modeling, evaluation, selection, design and implementation.
 He led business reviews, current state analysis, future state design, architecture roadmap, selection and implementation of
key data management and investment systems including portfolio management, risk, analytics, performance, compliance,
trading, accounting, client reporting, BI and data storage.
 Prior to InvestTech, he served as VP of Investment Technology at Columbia Savings and Loan where he led trading and
investment management technology related to managing the firm’s $6B high-yield portfolio.
• MBA, Portfolio Management and Securities Analysis Credits, UCLA Anderson School of Business
• Honors Post Grad in Business Information Systems, WITS University, South Africa
• BS, Computer Science and Applied Mathematics, WITS University, South Africa
Jeremy Hurwitz
Principal and Founder
 Large Hedge Fund Manager – As lead EDM Architect in a complete operational transformation, Jeremy managed the strategic EDM architecture
design and roadmap. He also assisted with operational outsourcing, selection of data warehouse, reference data, metadata and BI tools.
 MassMutual – Jeremy led the EDM architecture design and deployment, which included evaluation and selection of business intelligence,
reference data and data warehouse. He also designed and assisted with data governance roll-out.
 Northwestern Mutual – Jeremy served as the strategic data architecture in designing and reengineering the replacement of legacy data platforms
including reference data, data warehouse, integration and reporting.
 Ares LP and Apollo Advisors – Jeremy worked collaboratively over 15 years on investment systems, operations and data management from start-
up to current state.
 Other Relevant Projects – Nuveen, T Rowe Price, KKR, CalPERS, HIMCO, OPERS, Ontario Teachers, Capital Group, Nationwide Insurance, Allstate
Insurance, Principal Capital, Crescent Capital, Thrivent

Professional Highlights
Relevant Experience
Education
• Pam Bloom is an expert in alternative investments and buy-side asset managers with over 20 years experience.
• She has unique experience of providing services as both a consultant and as an in-house IT and Operations Director.
• She also has a comprehensive understanding of diverse business requirements and systems needs in trading, compliance,
reporting and performance of the many alternative asset classes including, but not limited to, privates, syndicated loans,
mortgage assets, high-yield bonds, swaps, etc.
• Pam has managed and implemented complicated investment management projects for asset managers with concentrated
multi-currency fixed income and alternative asset class portfolios including structured funds like CLO’s, CDO’s, Private Equity
and Debt and Hedge Funds.
• She has also managed and consulted on many portfolio trading and accounting selections, implementations, and upgrades
with heavy concentration on performance, compliance and data conversion.
• CPA (inactive) registered in the state of California
• BS in Business Administration from the University of Arizona
Pam Bloom
Alternative Investments Practice Lead
• Fortress Investment Group – Leading strategic effort, selection and implementation of investment sub ledger for permanent capital vehicles
including Mortgage REITS (RMBS/Repo’s/Mortgage performing and non performing loans/MSR’s/SA’s).
• Bain/Sankaty – Documented data warehouse and reporting requirements and evaluated Paladyne (Broadridge) and IVP Polaris as possible
solutions.
• Crescent Capital Group – Led the entire separation and decoupling from TCW. Selected and then moved all middle and back office functions from
BNYM to SS&C/GlobeOp. Implemented Black Mountain Systems to wrap multiple out-sourced providers.
• DDJ Capital Management – Provided strategic investment decisions during high growth period. Led the selection of a OMS, Trading, compliance
and DWH and implemented Black Mountain Systems across a hybrid of SMA;s and Fund accounts
• CalPERS ( Private Equity Group) – Led the requirements RFP for the selection of a new private equity service platform.
• KKR Asset Management – Conducted a strategic architecture and business process requirements review process and assisted in the decision to
outsource vs. in house middle and back office.
• Ares Management LLC and Apollo Advisors – Instrumental in assisting the companies growth over a 10 years period from start-up to mature state

The Leading Buy-Side Investment Industry Consulting Firm Specializing in Strategic Design,
Investment Systems & Applications Evaluation, and Technology Integration
• Founded in 1993 with offices in Los Angeles, Boston and Toronto
• 70+ Experienced Investment Systems Consultants
 Former CTOs, CIO’s, Heads of Operations, Data Architects, Solution Subject Matter Experts
 Senior Management team averages over 25 years industry experience
• Serving over 400 Global Investment Management Firms
 Institutional Managers, Advisors, Insurance, Mutual Funds, Wealth Managers, Pensions,
Hedge Funds, Central Banks, Brokerage, Endowments & Foundations
• Core Practice Areas: Investment Operations, Front Office, Alternative Investments, Enterprise
Data Management, Risk Management, Wealth Management
About InvestTech

Managing Alternatives at a Traditional Asset
Management Firm
• Alternatives Defined and Industry Trends
• Challenges with Managing AI Asset Classes
• Best Practices Solutions
• Questions and Answers
Agenda

Let’s agree on the definition of AI for the buy-side
By Investment Types
• Hedge Funds - Direct and Funds of Funds
• PE - Direct, Fund, Funds of Funds
• Real Estate and Infrastructure - Direct Asset, Funds, REITs
• Illiquid Credit
• Private Debt (direct lending, mezzanine, etc.)
• Distressed Debt (non-performing bank loans, mortgage & consumer loans)
• Structured Products (CLO/CDO, Credit Derivatives)
By Characteristic
• Illiquid - trades infrequently and with little volume
• Requires alternative methods for analysis
• Price infrequently and require valuation models
• Performance calculations require different methods (IRR, effects of leverage)
• Often not exchange traded
AI – the oldest ‘next big thing’

Survey of AI Investors
$-
$500.0000
$1,000.0000
$1,500.0000
$2,000.0000
$2,500.0000
Direct RE
Funds
Illiquid
Credit
Direct HF Direct PE
Funds
PE FoF FoHF
AI AUM Top 100 Firms
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Direct RE
Funds
Illiquid
Credit
Direct HF Direct PE
Funds
PE FoF FoHF
% Expected Growth

Definitions: Structures
One of the biggest challenges is that AI comes in many shapes and
sizes and there are vehicles in addition to direct investment
• Manager/Sub-Advisor/Strategic Partnerships
• Funds of One
• SMA’s
• Funds of Funds
• Co-Invest
• Joint Ventures
• Publically Traded (MF, HF, 40-Act and BDC)
• On Shore/Off Shore and Tax Advantaged
The need to look-through and use the
underlying holdings data drives
changes in procedures and solutions

Industry Drivers
1. Larger allocation to alternative assets funded from traditional asset classes
expected to continue
2. Non-US alternates gaining greater acceptance – global exposures
3. Enables portfolio diversification and risk management
4. Driving Yield, Alpha and Beta
 Investments with substantially distinct and uncorrelated returns from traditional
stocks and bonds with richer risk / return characteristics
5. As index and passive mutual funds becoming the “norm,” AI can be a key
differentiator of Managers (search for higher fees)
6. Barrier to entry has been mitigated by first generation of AI becoming
mainstream
7. Fund Managers willingness to provider greater transparency leads to new
acceptance to invest via SMA’s and Funds-of-One making it easier to manage

Management Firm
• Challenges of Managing AI Asset Classes
Agenda

Challenges - People
• Finding people that understand the nuances of all the different
AI instruments and structures
• Repurposing human capital takes significant training and time
to “get up to speed”
• Experienced resources are scarce for AI specific applications
• IT and technology custom development creates key-man risk
• Increased staffing costs for specialized marketing and client
service staff
• Scarcity of AI PM’s leading to buy-outs and mergers, further
driving up staffing costs

Challenges – Process 1/2
• Not a lot of lead time given to begin processing new instruments
• Need for more formal deal flow and pipeline solutions/forward
calendar automation
• Desires to capture and track CRM type fields and correlate to
Advisors/Funds
• Trade capture and settlement more manual and error prone
• Trades not entered into OMS often bypass pre-trade compliance
and allocation rules
• Different types of investment analysis and modeling
• Tracking of manger fee/compensation structures
• PE - Committed vs. Contributed capital and cash management

Challenges – Process 2/2
• More complex legal documents and T&C’s to capture
• Limited reference data providers and more manual process adds
risk to investment accounting and analytics
• Distressed asset valuation processes are manual and can cause
delays in closing periods and reporting
• Different / more complex performance measurement methods
• Complex exposure reporting – looking through the underlying
credit and counterparty relationships
• More demanding regulations and compliance restrictions on the
horizon

Challenges - Technology
• Most existing FOMOBO systems don’t natively handle AI
 AI assets are stuffed into traditional asset class set up
• Proliferation of one-off spreadsheets
• Traditional vendors playing catch-up
 DWHs and Marts don’t have specific AI domains
• Specialized vendor solutions lag the market
• Best-of-breed models require numerous specialized solutions and
interfaces
• Internal development = large undertaking = high risk
• Challenges with Total AUM and consolidated Reporting
 Inconsistency in asset roll-up (Par vs. Quantity vs. Notional vs. RE, etc.)

Management Firm
Agenda

Best Practices Solutions
1. Assess insource vs. outsource opportunities
 Outsource providers making strides in breadth and depth of services
2. Select best-of-breed sub-asset class solutions
 Align new solutions to your data management and architectural strategy
3. Expand and consolidate data models to support custom AI data
 Flexible data structures to support AI instruments
 Complex fund, product and instrument structures
 Unified “gold copy” data fields with definition and ownership
 Transparency into underlying and constituent data with extensive T&C’s
4. Build BI services to eliminate the spreadsheet mentality
 Self-service dashboards with analytics and click-through capabilities
5. Govern and Quality Control the AI data
 Enforce business data ownership and knowledge collaboration
 Implement UI workflows and data quality routines to support manual processes

Outsourcing: Investment Value Chain
Confirm &
Settlement of
Exchange
Traded and
OTC contracts
including Life
Cycle events,
Corp. Actions
and resultant
cash flows
Confirmations
& Settlements
Daily
calculations
and
movements
of all margin
and
collateral
positions
Collateral /
Margin Mgt
Risk oversight
on Portfolio
Management
activities
(exposure
monitoring,
risk profiles)
Portfolio Risk
Oversight
Performance
on all
structures
(portfolios,
funds,
composites)
to mandated
benchmarks,
attribution
analysis
Performance
Measurement
External
client
reporting
for all
investment
vehicles
Client
Reporting
Posting of all
accounting
entries and
production of
accounts
Investment
Accounting
Fund
accounting,
NAV
calculation
and
monitoring,
daily &
monthly
reporting
Fund
Accounting
Management
of all
shareholder
servicing
Transfer
Agency
Safekeeping
assets, cash
availability,
reconciliation,
income/tax
reclaims,
monthly and
ad-hoc
reporting
Custody
Reference
and Market
Data
management
(Security
Master File,
Pricing), Data
Quality checks
Data
Management
Asset
gathering,
investment
research and
portfolio
modeling,
trade order
management
& execution
Asset Mgt &
Trading
Middle OfficeFront Office Back Office
Information Technology Services (SaaS, PaaS, DaaS, IaaS)
Focus on business efficiency and the need to secure optimum returns are stimulating investment in renewed approaches to
asset servicing. Unlike more commoditized back-office functions such as custody and fund accounting, global sourcing of
middle-office operations is not a “cost race to the bottom”.
The service priorities are speed, accuracy and cost, with accuracy the most important factor, while 50% of asset management
firms consider that cost is not an important factor at all when it comes to middle-office outsourcing.
1970’s2000’s
Outsourcing Timeline
*Note that services for Alts specific lag the traditional offerings

Outsourcing: Landscape
Client
coverage
Complete
Limited
Functional coverageLimited Complete
BNYM
State Street
JP Morgan
Citi
Northern Trust
Citco
Hedgeserv
SS&C GlobeOp
SimCorp
Morgan
Stanley
SEI
Service
Providers
with strong
Alts
offerings

PE Market Analysis of Vendor Universe
Vendor Universe Assessment# Vendor Name Product(s)
1 eFront FrontInvest
2 Sungard Investran
3 Burgiss Group Private I, Private IQ
4 ViTech Systems Group EquiTrak
5 Backstop BackstopPM
6 3i InfoTech Framework
7 DAVIGOLD LBOffice
8 Relevant Equity Systems Equityworks
9 Analytx PEO
10 Vantage Software VantageSuite
11 Baxon PE
12 e.Venture Systems Limited eVenture
13 Vertice Technologies AltaReturn
14 Koger Pentas
15 App-X AIM
16 ClearMomentum
17 Digital Shape Technologies Webfolio
18 Sound Harbor Partners Trace Point
19 iLevel Solutions, LLC Ilevel
20 Burgiss Group PrivateInformant
21 Thomson Reuters LPXpert
22 NYPPEX NYPPEX
23 Pitchbook.Com Pitchbook
24 PrivateEquity Database
PrivateEquity
Database
25 SS&C Technologies TNR Solution
26 SEi Investran/Geneva, DWH, Web portal
27 State Street Bank Private Edge/Efront
28 CITI
29 JP MORGAN
30 BNYM Private I
31 Northern Trust
Private I, Private IQ, PrivateInformant
custom PE cash flow forecasting model,
Private Outlook.
32 Portfolio Advisors
33 AltResources
34 Augentius
35 FLSV Fund Admin Services
36 Ipes
37 Citco Fund Services
38 Brown Brothers Harriman & Co. Infomediary
InvestTech
Market
Analysis
Informal
Vendor
Interviews or
Demos
Vendor
Profile
and Risk
Assessment
Peer
Assessment
# Short-List Type
1
eFront
FrontInvest
COTS
2
Sungard
Investran
COTS
3
Burgiss
Private I
COTS
4
Vitech
EquiTrak
COTS
5
Backstop Solns
BackstopPM
COTS
6
SS&C
TNR
Hybrid
7
SEI
Multi
Hybrid
8
JPMorgan
Muti
Service
9
Citi Private
Equity Services
Service
10
Northern Trust
Multi
Service
11
BNYM
Muti
Service
12
State Street
Multi
Service

Data
Repository
Potential AI Vendor Landscape
Middle Office
IBOR
Front Office
TBOR
Back Office
ABOR
B-Rock / CRIMS / T-Folio
Advent Geneva
JPM, Citco, NT, SEI, SS&C, BNYM, SSB
Weak...…Medium…….Strong
Traditional OMSs. Heavy investment in
Derivatives. Less into Alts. Handle some classes
(Bank Debt). Gaps in PE, REO and Loans. Risk
increase with AI complexity.
Vertical AI Platforms present as
best of breed in their AI niche.
Typically customized to support
single AI classes: PE, Loans, CDOs,
Real Estate, Credit, Data
Repositories
Strong integrated I-ABOR-EDM-Performance
platform. Current H-Fund client adding breadth
in derivatives and data service layers.
V. Strong ABOR-IBOR + Hedge solution across
all security types. Weaker on proprietary DB
and performance measure.
Range of service providers offering a full set of
AI services or specific vertices – typically
leverage the vendor systems listed above
within their platforms
Summary observations
FusionInvest / Calypso / Summit / Murex
BMS Everest
Eagle, SimCorp
eFront, Investran, TNR, Dynamo, Vitech
Yardi, MRI
BMS
Polaris
MIK
Addepar
Broadridge
Investcloud
Vistaone
WSO
SimCorp

Normalized data environment to construct and implement investment
portfolio management decisions, service clients, and manage risk
Next Gen Data Services Platforms
Flexile security
classification
data
Full
transparency
look-through
Follow-the-
Money
(strategy PL)
Aggregated, intra-day
client portfolio
data/views
Consistency of
computed &
analytics data
Data Sources
Advanced Refactored Data Repository
Investment Data Optimization
Aggregation / Normalization / Grouping / Validation / Governance / Distribution
Data Optimization Platform
Market Data
Securities,
Reference, Pricing,
Ratings, Analytics
Investment Managers
Research, Reference Data,
Analytics Trades,
Positions, Research
Custodians
Securities,
Reference,
Pricing,
Holdings
Securities Accounting
& Other Sources /
Systems
Securities, Ref Data,
Pricing, Holdings

Management Firm
Agenda

www.investtechsystems.com
Thank you!

InvestTech FTF Webinar Managing Alternatives at a Traditional Asset Management Firm (for distribution)

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