BLOG. 3 min read
The information is clear when you see the 3-month, 1-year or 5-year performance for a stock or a long/short equity fund. Liquid markets provide accurate prices, NAVs are clear, dividends are well-defined and even corporate actions follow strict processes. It’s fairly straightforward to understand how investment has performed.
What if the data is not as clear?
This is the case for other types of investments. Thanks to REITs, ETFs, mutual funds and hedge funds, investors are now largely exposed to real estate, infrastructure and private equity, where understanding performance indicators become murky.
One of SS&C’s clients is a large real estate investment manager and the complexities they have grapple with for understanding and calculating performance can’t be underestimated.
The value proposition is clear—the firm invests in real estate, rents out buildings, offices or facilities, and the cash flow from these leases is income to the investor. The problem becomes scale. Imagine the investment company has dozens, if not hundreds, of properties each with dozens of renters and rental agreements. Typically, these agreements are short term and renting is a transient practice, meaning there is frequent turnover of leases. In this case, gathering income information is an extensive data management journey fraught with multiple data inputs, formats and errors.
Furthermore, properties are often valued as a consulting exercise every two or three years to capture property value appreciation or decline. This can be a subjective practice, but it produces property valuations as an input to computing overall fund performance.
Where things get interesting is factoring in the costs to maintain properties. In stock markets, transaction costs and management fees are simple to compute. For properties, there are taxes, utilities and maintenance costs, to name a few. Again, scale becomes an issue when trying to track all these inputs for hundreds of different properties. This sheer volume of data, together with the fact that fees are generally found in statements and documents, results in a compounding data challenge.
When it comes to calculating performance, a key challenge is data transparency. While it may be tempting to roll information up to the property or even fund level outside the system to calculate returns, you lose insight into valuable information.
The SS&C Performance Service provides real estate investment firms with a solution for data management, investment performance calculations, aggregation and comprehensive reporting in one place. By seamlessly consolidating and analyzing portfolio data, the Service enables firms to measure, monitor and understand the performance of investments across multiple strategies and asset classes.
Imagine a performance system that allows you to drill down to property-level information and then view which properties generate the highest returns. Then you can reassemble those properties back into funds or investments partially or wholly. After that, you can look at your returns for a particular neighborhood, or a particular management company. The SS&C Performance Service allows all this and more.
Example of a data visualization of granular level data to allow an investment company to view results in multiple ways.
The previous example just scratches the surface of insights that can be gleaned for these types of alternative investment funds, including infrastructure and private equity investments.
The next step is to analyze their risk.
Contact us to discuss how your business can achieve the same efficiencies for your performance measurement.
