Coming Out of Financial Crisis, Investors Clamor for Transparency Through Technology

(April 21, 2011) — Heightened regulations and demand for transparency have led to a greater need for technologies that help institutional investors track their return streams, according to Lisa Corvese of PerTrac, a software provider.

The financial crisis was a blessing in disguise for technology firms such as PerTrac, a provider of analytics, reporting and communications software for investment professionals, which benefited from the greater effort among institutional investors to pay more attention to liquidity and asset exposure.

“The institutional investor has had to become more active in their review process – they can’t outsource the entire responsibility,” Corvese tells aiCIO. “Pre-Madoff, institutions let a lot of the due diligence on the infrastructure side be handled by consultants.” Today, however, institutional investors need to be more actively at the table and understand the infrastructure behind their investments, which has consequently placed a greater strain on their current resources. “These calls for transparency have put a burden on pensions to do a lot more, with consultants becoming the educators,” she says.

Corvese compares the changing investor climate to the act of buying a house. “Usually you take the word of the inspector,” she says. “But now, institutional investors are looking at the pipes and plumbing behind their investment. They want to know the size of the pipes and the materials used in the pipes. They’re understanding — at an intimate level — their day-to-day operations,” she says, noting that the investment management community is having a very different conversation about their investments than they had two years ago.

Additionally, coming out of the global financial crisis, Corvese says that she has witnessed the growing popularity of hedge funds among pensions as they seek higher returns and as the alternative industry becomes more mainstream. “The entire institutional investing community is much more comfortable and at ease in the alternative investing space, and the numbers show that they’re willing to put more money into the hedge fund community.”

A recent study by accounting and audit firm Rothstein Kass reflects this heightened optimism over hedge funds. According to a study of hedge fund managers, more than half said they have a generally positive outlook for the industry, expecting pensions to play a larger role in 2011 and beyond.

“Now that hedge funds are gaining such traction, the alternative industry isn’t as alternative anymore,” Corvese says.