Impact technology can make a real difference in the communities hit hardest by the pandemic. However, research shows the majority of investors are worried about conducting due diligence quickly enough to make a difference. Technology used in speciality fund administration may provide the solution these investors need in order to make informed decisions around allocating capital to make impact investments.
Wouter Plantenga, ICS Head of Client Services at JTC Group, would know. He has nearly two decades’ worth of experience assisting alternative investment funds, financial institutions, and multinational companies in delivering bespoke service solutions.
To best serve his clients in the fund administration space, Wouter relies on cutting-edge technology-enabled solutions, which are offered through NES Financial, the North American division of JTC. Here, he discusses some of those solutions and how they can better facilitate impact investment amid Covid-19.
Despite the disruptive effects of Covid-19, the majority of impact investors expect to maintain their 2020 investment plans, and over 15% expect to increase the amount of capital they invest. By now, this should come as no surprise: the needs of this moment, whether it’s widespread unemployment, food insecurity, or homelessness, call for it.
But all the capital in the world means little if it can’t be effectively deployed to those who need it most – and the pandemic has made this harder, too. According to recent research from the Global Impact Investing Network, 52% of impact investors seeking to deploy additional capital are worried about conducting due diligence quickly enough to make a difference. Doing so remotely, their report suggests, poses significant challenges.
This is just one of the many areas in the impact investing world where technology can – and must – play a more significant role.
There are relatively obvious solutions, like video conferencing and document sharing. An executive from HCAP Partners, for instance, cites weekly teleconference calls, shared documentation with relevant partners, and the use of additional third-party resources to “make our diligence process more robust in the absence of site visits.” Still, others are expanding the use of scenario analysis tools, seeing as ongoing market volatility has made generating accurate and reliable valuations increasingly difficult.
In many instances, however, these new forms of due diligence will themselves pose unique challenges, as they involve more parties, more (and/or new) risk reporting requirements, and more financial documentation – all while the processes themselves continue to evolve at a rapid pace.
If the overarching goal is to conduct due diligence quickly and effectively, new technologies – beyond Dropbox and Zoom – are needed here as well, both to reduce administrative burdens and drive more accurate reporting. In this respect, speciality finance administration (SFA), which uses technology to meet the complex, strict and ever-changing requirements of programs like EB-5 and Opportunity Zones, might prove a useful guidepost.
For instance: whereas traditional fund administrators often still use Excel to calculate waterfalls and produce financial statements, leading speciality finance administrators to utilise digital platforms to automate workflow – from onboarding to document management to reporting. Crucially for this moment, the right SFA technology platform can also nimbly adapt to changing conditions, such as new reporting requirements or the scaling up or down of a given fund. If done right, all of this information will live on a centralised, secure, online portal that offers investors 24/7 access to the progress, performance, and social impact of the fund at hand.
Meanwhile, on the measurement side, SFA demonstrates how technology can help investors make decisions about the likely impact of their capital, as well as track their performance over time using key metrics, like the number of jobs created. If one assesses the NES Financial Opportunity Zone platform, for instance, it uses data points such as poverty and inequality levels, housing cost/density burden, household income, educational attainment, resident demographics, and transit scores to calculate location-based impact potential for a given census tract. It can then track a project’s impact to date against its projected impact, providing regular updates to stakeholders via an online portal. This level of detail is critical moving forward as investors increasingly demand ways to measure the true impact of their investments.
For now, technology like this might exist largely in the domain of speciality funds – funds that, due to their complexity, have required it. But with the pandemic making impact investing both more necessary and more challenging to enact, there’s no reason why more investors and fund managers shouldn’t follow suit.
After all, in today’s world, impact investing may be only as effective as the technology used to deploy it.