How Hedge Funds Can Automate Investor Onboarding

In 2024, the European hedge fund industry is filled with both challenges and opportunities.

Regulatory compliance is more demanding than ever, with funds needing to adhere to complex regulations, reporting, and disclosure. 

The costs and risks associated with compliance place a significant burden on hedge fund managers, making operational efficiency crucial.

At the same time, competition from passive investment vehicles like ETFs and alternative assets such as direct lending is intensifying, forcing hedge funds to differentiate through unique value propositions and superior investor service.  

However, these challenges are matched by opportunities. 

According to a recent article by Reuters, hedge funds are driving large trading volumes that are causing significant fluctuations in stock prices. This dynamic provides hedge funds with opportunities to capitalize on market inefficiencies through strategies like short-selling and leveraging positions. 

As hedge funds continue to dominate trading activity, they are well-positioned to exploit these market conditions, offering potentially higher returns for their investors.

To build a good relationship with these investors and expedite the subscription process, hedge funds need to deliver a seamless investor onboarding experience that meets investor expectations.

Technological advancements provide the tools necessary to streamline operations, reduce risk, and enhance performance.

Cyril Bériot, Partner and head of Business Development at Trajectoire Capital Group and Hedge Fund Expert explained the necessary role of technology in this industry. 

A best-in-class tech stack costs money, but we think it’s money well spent to be able to be visible [to investors] and to achieve our goal of having the mission statement discussed. You also need to have the right partners and assets. Everything needs to be in motion altogether so that you slowly but surely build your credibility.

Manual Investor Onboarding Slows Down the Subscription Process 

Without proper systems in place, verifying the identity of new investors and gathering all the required data can be complicated and time-consuming. 

Traditional hedge fund investor onboarding involves: 

1. Initial Investor Communication

Fund managers or administrative staff manually distribute initial documentation to prospective investors. This may include a private placement memorandum (PPM), subscription agreements, and compliance forms.

2. Document Collection and Review

Investors receive and manually fill out subscription agreements, providing details such as investment amount, legal name, contact information, and tax identification.

• Proof of Identity 
• Proof of Address 
• Source of Funds
• Corporate Documents - For institutional investors, additional documents such as articles of incorporation, company registry extracts, and shareholder agreements may be required.

3. Manual Verification and Compliance Checks

The fund’s administrative team manually reviews all submitted documents to ensure completeness and accuracy. Manual checks are done against various databases to verify the investor’s identity and ensure compliance with AML regulations. 

If any documents are missing, incomplete, or unclear, the team contacts the investor for clarification or additional information. This back-and-forth communication can significantly delay the subscription process.

4. Legal Review and Agreement Finalization

The fund’s legal team reviews the subscription agreement and KYC/AML documentation to ensure all legal requirements are met. Investors must sign the final subscription agreement, typically requiring a wet-ink signature. This document is then physically returned to the fund manager.

All signed agreements and supporting documents are manually filed and stored, often in physical and digital formats.

5. Capital Commitment and Allocation

Once all documentation is verified and approved, the fund issues a capital call, requesting the investor to transfer the committed funds to the fund’s designated bank account.

Upon receipt of the capital, the investment amount is allocated according to the subscription agreement terms, and the investor’s details are manually entered into the fund’s records.

6. Ongoing Communication and Updates

Throughout the investment lifecycle, the fund manager manually updates investors, including performance reports, market analysis, and any significant fund developments.

The fund must regularly update and maintain compliance records, which involves periodically verifying that investor information remains accurate and up-to-date.

7. Exit and Redemption Process

When investors decide to exit, they submit a redemption request. This request must be manually processed, including calculating the redemption amount based on the fund’s current value.

Once approved, the administrative team verifies the redemption request and arranges for the investor's payout, which again involves manual data entry and financial transactions.

This manual onboarding process, while thorough, is slow, labor-intensive, and prone to errors. 

Each step requires close attention to detail, significant administrative resources, and a high level of coordination, making it challenging for hedge funds to operate efficiently, especially as they scale.

What Happens When Funds Switch to an Automated Investor Onboarding Platform 

Our vision in creating Vestlane was to help fund managers, investors, and third parties optimize investor onboarding and fund operations. 

We now support over 220 funds across various sectors, including prominent names like World Fund, Headline, AENU, and Project A, with more than 6,000 investors successfully onboarded on our platform.

Investor onboarding can be done in four simple steps with Vestlane.

1. Invite investors and capture their information using intelligent questionnaires and prefilled company register data.
2. Effortlessly verify investor documents with automated KYC/AML checks.
3. Send subscription agreements with options for qualified electronic signatures.
4. Communicate with investors through the platform, ensuring a single, reliable source of information for all parties.

Funds and investors appreciate these features that we provide to streamline their onboarding process: 

• Reusable Investor Profiles: Vestlane allows investors to reuse their profile information across multiple funds, speeding up the onboarding process and allowing them to subscribe to funds in about 5 minutes. 
• Data Rooms: Our all-in-one platform centralizes all investor documents, making it easy to access, manage, and update information as needed.
• Real-Time Compliance Monitoring: Vestlane provides ongoing compliance monitoring, ensuring that investor information remains up-to-date and that all regulatory requirements are continuously met.
• Detailed Fundraising Insights: Fund managers can access detailed insights into the fundraising pipeline, helping them track progress, forecast outcomes, and make informed decisions.
• Customizable Workflows: Vestlane offers customizable onboarding workflows tailored to each fund's specific needs, ensuring a seamless and personalized experience for investors.
• Integrated Public Register Access: Our platform integrates with public registers, such as North Data, to quickly verify investor information without requiring additional input from the investors.
• Enhanced Security: Vestlane ensures that all investor data is securely stored and encrypted, protecting sensitive information and maintaining investor trust.

Funds also benefit from Vestlane’s smart information capture system, which is trusted by thousands of LPs. This intuitive questionnaire gathers only the relevant information from investors, enabling them to skip unnecessary questions.

We created automated questionnaires that guide investors to the right sections based on their answers. For example, if an investor is an individual, they will only need to provide personal information.

Gabriele Falace

Vestlane Co-Founder & CTO

​​Vestlane’s advanced tools simplify the onboarding process so fund managers can focus more on meeting their investors' unique needs.

Hedge Fund Investors vs. Private Equity and Venture Capital 

Private equity, venture capital, and hedge funds all attract sophisticated investors, but the profiles, expectations, and investment horizons of these investors differ.

Hedge funds appeal to investors who are comfortable with a higher level of risk and complexity and value the ability to enter and exit positions more frequently.

Private equity and venture capital investors typically accept low liquidity, with capital locked in for extended periods. They are more interested in long-term growth and substantial returns from either established companies (PE) or high-potential startups (VC).

For hedge funds, where liquidity and flexibility are key selling points, the ability to offer seamless and efficient exit processes can significantly impact investor satisfaction and retention.

This is where digital investor onboarding and management platforms come into play, streamlining the exit and redemption processes. By leveraging technology, hedge funds can not only meet their investors' liquidity demands but also ensure compliance and transparency throughout the process.

Managing Investor Exits and Redemptions Digitally 

Investors may choose to exit or redeem their investments for various reasons. One common reason is profit. After a fund has performed well, investors might want to cash out to lock in their gains. This allows them to secure their profits and reinvest in other opportunities.

Liquidity needs are another major factor. Investors might need access to their money to meet personal financial requirements or take advantage of new investment opportunities. In such cases, they may redeem their investment from the fund to free up cash.

Changes in market conditions can also drive exits and redemptions. If market conditions shift or an investor’s financial strategy changes, they may opt to exit the fund to adjust their portfolio accordingly.

Lastly, if a fund is underperforming or not meeting an investor’s expectations, they might choose to redeem their investment and reallocate their capital to other opportunities that better align with their financial goals.

Vestlane can help with faster fund redemption.

Using our platform, Hedge funds can speed up the redemption process with effective investor management, digital tools, and improved operational and compliance strategies.

Managing investor exits and digital redemptions is no longer just an option—it's becoming necessary for hedge funds looking to stay competitive and maintain investor trust. 

By utilizing digital platforms, hedge funds can streamline these processes and ensure they are handled with the efficiency, transparency, and compliance that today’s investors demand.

Is the Private Market Embracing Technology? 

More than 220 funds have now transitioned to using Vestlane to manage investor onboarding and fund operations. 

This shift reflects a broader trend within the industry, where the demand for streamlined processes and enhanced investor experiences is driving technology adoption.

The ability to efficiently manage investor information and transactions in a secure digital environment has become a key advantage for these funds, allowing them to stay competitive in a market with higher expectations for speed and transparency.

I was amazed by Vestlane"s subscription process. It transformed Capmont"s old, paper-based methods into a seamless digital experience, greatly improving our efficiency.

Fabian Langaard

COO at Capmont GmbH

As the number of funds and investors utilizing these platforms continues to grow, digital onboarding and management are becoming the new standard in the industry.

It's time for your fund to embrace the benefits of technology. Book a demo with us and receive a quote in just 30 minutes, along with personalized guidance on how we can support your fund's growth.