5 reasons to upgrade your investor onboarding process

April 24, 2023

Private markets firms are setting their sights on retail investors and exploring innovative fund structures and technology to overcome historical barriers.

Those retail investors are simultaneously turning to the private markets for lower volatility, diversified risk, and enhanced returns. Private equity assets under management is expected to increase by 10.2% annually through 2027, while dry powder available for venture capital investments is set to reach $659 billion by the end of 2027 compared to $531 billion as of September 2022.

The rise of the mass affluent tier of retail investors with a net worth of less than $1 million has enormous potential. Much of the growth in private markets is expected from individual investors, who hold approximately 50% of global AUM, yet only 16% of alternative investment AUM. Forecasts estimate a 12% annual increase in individuals invested in alternative assets compared to 8% for institutional investors over the next decade.

Capitalizing on these opportunities may prove challenging at best for firms that still rely on manual processes to onboard new investors.

Out with the old onboarding process

Traditional paper-based approaches to investor onboarding require multiple team members and outside counsel to manage necessary documents and processes, including limited partner agreements, non-disclosure agreements , side letters, tax documents, and AML/KYC monitoring. Tracking required processes and documents entails spreadsheets, checklists, emails, and disparate platforms.

In addition, it’s challenging to see investor status, which can slow down fund deployment and increase outside counsel fees.

These manual processes also cause headaches for investors, who must wade through documents that are often 100 pages or more in a clunky PDF format. Because not all the documents apply to every investor, the investor shoulders the burden of figuring out which forms to complete. It’s also easy to miss required questions or signatures and make mistakes — all of which take more time for investors and managers to resolve.

This back-and-forth process of paperwork, signatures, and follow-ups can take weeks or months, to the detriment of everyone involved. However, a digital, streamlined onboarding approach can eliminate inefficiency and frustrations, resulting in five core benefits.

Top 10 Terms in Subscription Documents

5 benefits to a digital subscription process

1. Streamline processes for LPs

A streamlined onboarding process can reduce the time and effort LPs must expend when subscribing to a fund. FundFormer, available with Insight, not only converts subscription books into digitized forms, but also helps LPs create an investor profile and complete required forms based on their investor type. FundFormer saves time with conditional logic that guides LPs through only the questions relevant to their business, saving time and avoiding potential confusion. Profiles and completed forms are stored in one place for easier lookup in future subscriptions.

And FundFormer’s eSignature capability speeds up the subscription process, saving investors time and allowing general partners to close funds faster.

2. More time and resources for value-generating activities

The traditional approach to onboarding increases a manager’s administrative burden, taking time and resources away from value-generating activities. Digital onboarding tools automate many routine administrative tasks, such as checking paperwork for errors, updating spreadsheets, and emailing reminders to investors or third parties.

Digital tools can also help firms establish repeatable processes that drive internal accountability and scale with the business while enhancing the investor experience. As a result, staff have more time to dedicate to strategic priorities.

3. Decreased risk of errors and delays

One of the most common issues in onboarding is incomplete LP forms. Missing information can bog down the process and cause fund launch delays.

FundFormer by Ontra includes alerts for incomplete or improperly answered questions before investors can submit their forms. This feature eliminates common oversights and time-consuming follow-ups, helping keep fund launches on track.

4. Embedded compliance workflows

With heightened regulatory scrutiny in the private markets, it’s critical to implement a solution that integrates regulatory compliance into the investor onboarding workflow.

FundFormer helps managers collect all required investor data and comply with tax, AML, and KYC obligations. It stores the data in a centralized repository for easy access by a firm’s compliance team, which cuts down on the time needed to locate data during audits, for example.

5. Increased competitive edge

The competition for deals is growing, and investors of all types increasingly expect easy, digital experiences when completing any process. Cumbersome and frustrating onboarding experiences could cost firms future AUM and even deals as investors gravitate toward managers offering a modern, streamlined onboarding process.

Firms can get ahead by digitizing their most routine-yet-inefficient investment processes, such as investor onboarding. A digital upgrade of the subscription process can eliminate many cumbersome and costly inefficiencies and deliver an enhanced investor experience. Doing so now creates a strategic advantage for future growth.

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