7 private markets trends and how they’ll impact asset managers’ plans

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Business and legal process outsourcing in the private markets have been popular for decades. Yet many asset management firms continue to keep repetitive tasks like non-disclosure agreements (NDAs) and other routine contracts in-house. That may finally change because of legal process automation.

Traditionally, firms focused on outsourcing as a cost-saving measure. Processes that didn’t require human interaction could be sent offshore. However, with convenience and lower fees came concerns ranging from quality to efficiency and, more recently, data security.

The other option has been to send legal work to outside law firms. This quashed fears over quality but resulted in significant fees.

Now there may be a new, third option. Like most services, legal outsourcing has evolved along with legal technology. Advancements in artificial intelligence (AI) and machine learning (ML) have led to a new generation of legal process outsourcing: legal process automation (LPA).

With the right LPA vendor, asset managers gain a strategic partner. Firms can access smoother, more efficient, and faster dealmaking and fundraising processes.

7 Factors changing legal outsourcing for asset managers

Take a look at the private markets trends driving asset managers to outsource and automate legal tasks.

1. Growth in private markets

Private markets have grown exponentially in recent years, reaching $18 trillion assets under management by mid-2021.

They’ve also raised more capital than public markets each year for the past decade. As a result, managers handling private funds are busier than ever, particularly with high-volume routine contracts. They need internal resources focused on core work instead of handling cumbersome manual tasks.

2. Increased regulatory scrutiny

The U.S. Securities and Exchange Commission (SEC) openly discusses its concern with how general partners and limited partners function in the private markets, particularly the lack of transparency surrounding their relationships and preferential terms in Limited Partnership Agreements and side letters. Years ago, the SEC began taking a closer look at these relationships and, in early 2022, voted to propose amendments to Form PF and the Investment Advisers Act of 1940.

3. Pressure on firms’ fees

Asset managers are warding off concerns regarding their fees from investors and the SEC. Investors are pressuring firms to lower their fees, or at the very least, not increase them. Meanwhile, the SEC looks closely at whether firms charge fees accurately per their limited partnership agreements and side letters.

4. Demand for speed

Firms feel the pressure to move quickly during transactions. As a result, they’re constantly searching for ways to differentiate themselves from their competitors. One of those ways is to move more efficiently through due diligence, contract creation, and other legal tasks.

5. Pressure to raise funds quickly

There’s a great deal of pressure for firms to raise funds quickly to benefit from additional management fees. Outsourcing one or more processes offers the speed and efficiency necessary to scale, whether pursuing a new strategy or raising funds for an existing strategy in a new region.

6. Need for new strategic capabilities

Firms have realized they need time and resources to focus on new tasks and priorities. In particular, firms worry about business continuity, regulatory changes, reputational risk, workplace culture, and employee morale and retention.

7. The digital transformation

Operational efficiency is a top priority for firms in 2022, and digitization is integral to that goal. Firms can benefit significantly from cloud-based technology and AI- and ML-enhanced solutions to improve transaction speed, due diligence, fund obligation tracking, and information governance.

Legal process automation with Ontra

High-volume routine contracts, such as NDAs and vendor contracts, are a legal process primed for automation. Yet, many asset managers continue to handle routine contracts in one of two ways.

Many negotiate and execute these contracts in-house, foregoing outsourcing altogether. This pulls their in-house lawyers and business associates — who often lack legal training — off other tasks. Alternatively, firms take advantage of outsourcing by sending routine contracts to outside counsel. This arrangement typically results in significant fees.

With advancements in legal technology and contact automation, firms can avoid both of these costly situations. At Ontra, our contract automation solutions encompass AI-driven technology partnered with a global network of highly trained lawyers. We empower simpler, more efficient dealmaking and fundraising.

Learn more about legal process automation