Publications

- September 1, 2019: Vol. 6, Number 8

Roundtable: Technology and investing

by contributing executives

Technology is increasingly on the minds of investors as they do their best to get their arms around rapidly unfolding tech-related issues. Technology is evolving so quickly it is difficult to keep pace, let alone understand its implications for investors, or how to integrate it into critical processes.

Most investors are not technology experts, though there are members of the private wealth industry who are conversant with digital innovations and their potential for advancing investors ability to better select and manage their financial commitments.

Here are some of the questions that investors should be asking themselves, and some perspectives on those topics from industry professionals.

 

Tim Galbraith, founder and CEO, Innovation Beta

How should I be adapting my investment strategies moving forward to respond to the changes these new and emerging technologies or technology-enabled business models are creating for the investment markets and property types in which I’m investing?

Technology trends drove real estate investment in data centers and renewable energy infrastructure. These are assets that barely existed 25 years ago. The rise of digital investment platforms that aggregate a wide range of investment options are also important tools for investors. These platforms are heavy users of technology that allow investors to research, invest and monitor their assets. Many of the offerings are pre-screened feeder funds, allowing properly accredited investors to deploy smaller amounts of capital in deals typically reserved for institutional investors. Further, some digital startups are offering direct access to deals, eliminating financial middlemen that may drive down the cost of investing. Plus, the variety of collateral offered on these platforms provides new diversification opportunities that have never been accessible to individual investors. Investors need to adapt to new technologies for both return possibilities and better portfolio design.

 

Dara Albright, adviser, EisnerAmper

Are there any new technologies emerging or available now that I should be encouraging my investment managers to take a stronger look at, or adopt?

Blockchain technology, a form of distributed ledger technology (DLT), most known for underpinning digital currencies, is on the verge of reshaping every aspect of global finance. It is transforming corporate finance, helping birth new asset classes, democratizing access to existing asset classes, bringing liquidity to illiquid asset classes, and forever changing and expediting the way all securities — traditional and modern — are exchanged. Accordingly, it goes without saying that all investment managers need to be conversant in blockchain-related technologies. One of the most interesting uses of DLT technology for investment managers is in the tokenization of securities. Tokenization is presently being tested and used to improve anti-money-laundering and fraud mitigation efforts, lower transaction costs, and expedite settlement. Following the progression of tokenization, as well as actively keeping track of the local, national and international blockchain regulatory landscape is an essential task that should be on every investment manager’s daily “to-do” list.

 

Brandon Sedloff, managing director head of business development, Juniper Square

Are there any new technologies emerging or available now that I should be encouraging my investment managers to take a stronger look at, or adopt?

The real estate industry is finally jumping into the path of progress. Investors are demanding more transparency and are no longer tolerating sloppy reporting. Managers have great technology options and should be thinking about how to consolidate disparate systems to reduce data silos, as well as looking for ways to establish a single source of truth. Dedicated real asset investment management and reporting technology tools provide managers with the flexibility they require but without the burden of implementing cumbersome accounting software. Having a centralized repository for investor- and asset-level information will ensure better data governance and, with the right application, logic can help to reduce the burden of keeping up with investors’ reporting requests. With this type of technology in place, investors can operate more efficiently, attract better talent, and protect and safeguard highly sensitive and confidential investor information.

 

Kerry Scanlon, senior vice president, Platform Ventures

How are new and emerging technologies or technology-enabled business models changing real estate investment?

Real estate, at its core, is a local business. Often the best real estate investments are locally sourced and operated. While these local real estate investment managers may not be the “name brands” you see on Wall Street, oftentimes they have track records and niches that can be quite appealing to individual investors, especially at this point in the economic cycle where value is more difficult to find. Technology is beginning to bring these investments into the mainstream. Technology provides more access to these regional and local “sharpshooters” and gives investors more options within a previously restricted asset class. Further, technology offers investors the ability to gather extensive information, allowing for thorough due diligence and simplified investment processes. To adapt to this enhanced access and transparency, financial advisers can review clients’ existing investment portfolio allocations and adjust where needed in a much more efficient and low-cost way.

 

Sameer Jain, partner, ActiveAllocator.com

Are there new technologies emerging or available now that investors can use to help manage their portfolios and portfolio holdings?

Strategic asset allocation — how much to invest in which sub-asset class — is rapidly evolving from its 60-year-old roots. New computing algorithms now calculate future statistical properties of various real estate formats to combine them in the most optimal amounts. This, for the first time ever, now permits construction of liquid and illiquid actively managed and passive real estate portfolios. Such portfolios include public debt accessed through CMBS and CMO instruments, as well as private debt accessed through whole loans, mezzanine, B notes, etc. New technologies faciliate the combination of debt with public equity such as REITs, REOCs and long/short hedge funds. Furthermore, these combinations can be optimized with property holdings held in private equity structures, including core equity, value-add properties and opportunistic niches. Advances in computing technology now allow for changing expectations of future returns and risks as well as bringing dynamic calculation of correlations to portfolio construction.

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