As we shift towards digitally driven private markets, it’s crucial to know the nuances that distinguish digitising, digitalisation, and digital transformation. Alexander Green, Co-Founder and CCO of Globacap dives into each component and shares how they can give funds a competitive edge.
The year 2024 has marked a turning point for private markets.
They have seen a 170% increase in capitalisation in the past year, and assets under management (AUM) will reach $65 trillion by 2032, growing twice as fast as public markets AUM.
As private markets gain more visibility, there is a growing interest among investors looking to secure their share of the opportunities. The key to unlocking these opportunities is digitisation but terms like “digitising,” “digitalisation,” and “digital transformation” are often and mistakenly used interchangeably. Each represents distinct stages of a company’s journey towards integrating technology into its operations.
Understanding these differences is critical for firms looking to remain competitive and future proofing their business.
Digitising: converting physical information into a digital format
At its core digitising involves converting analogue or physical information into a digital format.
While digitising primarily focuses on efficiency gains and cost reduction, it lays the groundwork for more advanced digital strategies.
When talking about digitising, also known as the foundation, it’s important to recognise the key considerations:
- Efficiency enhancement: streamlining manual processes through automation.
- Cost reduction: decreasing operational costs associated with manual tasks.
- Data accessibility: improved access to digitised data, enabling faster decision-making.
These are the essential advantages that digitising delivers.
Digitalisation: optimising processes
Digitalisation takes digitising data one step further by leveraging technology to optimise processes and enable data-driven decision-making. This involves the use of analytics, artificial intelligence, and data integration to gain insights and create actionable strategies.
This means harnessing data analytics to optimise investment portfolios, enhance risk assessment, and refine client engagement strategies. Key aims and achievements for this element include:
- Data integration: combining data from various sources for comprehensive analysis.
- Predicative analytics: utilising AI and machine learning to forecast trends.
- Customer insights: enhancing client relationships through data-driven personalisation.
Digital transformation: reshaping business models
Digital transformation represents the apex of the digital evolution spectrum. It involves a holistic and strategic overhaul of an organisation’s business model, culture, and operations, driven by technology, such as the adoption of blockchain for transparent and secure transactions, or the implementation of customer-centric platforms to enhance engagement.
The key considerations for digital transformation include:
- Cultural shift: fostering a digital-first mindset throughout the organisation.
- Innovation: embracing emerging technologies to create new revenue streams
- Agility: adapting quickly to market changes through digital capabilities
Why digital transformation should be a priority
With such vast volumes and substantial growth on the way, many asset managers are vying to capture a greater share of the market.
However, many are preoccupied with other challenges such as performance and rising costs and overlooking the critical need for digitisation which will help solve these issues and more.
There are many areas within private markets that are ripe for digital transformation. There are many manual, repetitive processes, reporting consists of a patchwork of disconnected and manual systems including Excel spreadsheets, and incompatible formats, settling a transaction can take months while distribution has a variety of pain points including investor onboarding and communications.
By leveraging automation, fund managers can streamline these tasks, reducing the reliance on manual intervention, increasing efficiency, speeding up timelines, slashing costs and, most importantly, freeing up resources to focus on alpha generation.
Asset managers that do this will be well-positioned to capture a bigger piece of the lucrative private markets pie; those that don’t will get left behind.
A path to long-term success
Private markets have now evolved beyond a hedge against inflation; they have become a strategic imperative for institutional investors and as they continue to grow, understanding the distinctions between digitising, digitalisation, and digital transformation becomes increasingly essential.
Private markets are a $25tn market, that is relatively untapped. Firms that understand and strategically implement these stages will not only level up their current processes but also position themselves to capitalise on future opportunities within the growing landscape.
As the industry continues to draw more attention and investment, it’s essential to recognise that each phase of digital evolution serves a specific purpose and offers distinct advantages.
It is the combined integration of digitalisation, digitalisation and digital transformation that truly unlocks the transformative power of technology in private markets.
