The alternative investment industry has always been fiercely Darwinian: The fittest survive and underperformers soon disappear. New entrants are a vital ingredient for a vibrant marketplace: They bring innovation and competition to the space and provide institutional investors with more investment choices.
For small and emerging managers, however, there are increasing barriers to both entry and success. These impediments limit the efficiency of the space and undermine the effectiveness of the competition within it, all to the detriment of the end investor. But SPARK, a new program from the Standards Board for Alternative Investments (SBAI), is designed to address these obstacles.
So what are the major hurdles for up-and-coming managers in the alternative investment sector? They include:
- Rising expectations from institutional investors around the due diligence process.
- Increasing regulatory burdens and the associated compliance costs.
- The ongoing challenge embracing innovation and such new industry trends as responsible investing.
- Downward pressure on fees and the corresponding need to expand assets under management (AUM) just to break even.
As if these weren’t intimidating enough, access to the institutional investor community is another challenge for small and emerging managers. This makes it harder for new entrants to understand the institutional investors’ expectations. This can then be compounded without the ability to network with their peers, troubleshoot common challenges, compare service providers, and learn best practices.
That’s where SPARK comes in. The SBAI designed it specifically with these impediments in mind.
What Is SPARK?
SPARK is built on the foundation of the SBAI, the Alternative Investment Standards. These were developed over time and in consultation with both institutional investors and asset managers.
The Standards Board for Alternative Investments Platform rests on several key pillars:
- Advancement of networks by facilitating connection and collaboration among peers and allocators.
- Robustness of business operations through the SBAI Alternative Investment Standards.
- Knowledge of key industry trends and issues through access to SBAI working groups, global events, and guidance memos in the SBAI Toolbox.
Thomas Deinet, CFA, the executive director of the SBAI, said, “SPARK is an important program, not only for providing essential guidance and resources to small and emerging managers, but also for contributing to the SBAI’s mission of ensuring high standards of conduct and governance in the alternative investment industry as a whole.”
So what do these offerings look like?
Workings groups hone in on the most critical issues in the industry, including those around responsible investment, governance, valuations, and culture and diversity. SPARK members will have limited access to some of these working groups, while SBAI signatories will have full access.
Working groups, Governance among them, bring together asset managers and institutional investors to both discuss and agree on best practices in such areas as cash handling and cybersecurity, conflicts of interest, and fund board meeting agendas.
Global events are available to SPARK members around once a quarter as well and focus on allocation amid the COVID-19 epidemic and benchmarking, among other essential topics. SBAI signatories have full access to all working group and industry topics.
SPARK programs are geared specifically for up-and-coming firms and feature institutional investors, including those with dedicated emerging manager programs. SPARK participants can also access SPARK content on the dedicated SPARK homepage.
Guidance memos and transparency templates are also available as are opportunities to collaborate with investors and peers.
The goal is to help small and emerging managers add value across their entire firm by providing guidance on the proper segregation of duties; developing robust and institutional processes and controls; and meeting requirements of the institutional investor due diligence process including documentation, transparency and the level of detail required.
Survival of the fittest shouldn’t mean survival of the biggest or best-connected managers. With SPARK, small and emerging managers can give themselves a competitive advantage by understanding both best practice and the requirements of alternative investors. In this way, we can help maintain the vibrancy and diversity of the alternative investment industry.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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Maria Long joined the SBAI as content and research director in August 2020 and is responsible for the SBAI’s Working Groups and Toolbox publications. Prior to joining the SBAI, she was an operational due diligence analyst at Man FRM (‘FRM’) a fund of hedge fund and managed account provider based in London. Prior to joining the operational due diligence team in 2015, Long was the head of FRM Middle Office. Her responsibilities included oversight of valuation production, expense payments, FX hedging, and reconciliations. Prior to joining FRM in 2008, Long worked for Northern Trust Hedge Fund Services in Dublin running the fund of hedge fund accounting team and also held operational roles at Unigestion SA and Thames River Capital (UK) Limited, both hedge fund managers based in London. Long received first class honors for a BSc in physical sciences from the Open University in June 2017.