Modernizing Business Spend Operations for Alternative Investment Managers

Modernizing Business Spend Operations for Alternative Investment Managers

AI and ML-driven automation is the new source of alpha generation in an era of shrinking margins, regulatory scrutiny and operational complexity

By Steven Petersen and Avtar Batth

The front office in alternative investments and capital markets has been transformed dramatically in the past decade with AI-driven analytics, multi-asset strategies and algorithmic execution. Although the front office of complex businesses is rapidly evolving, financial operations in the back office remain characterized by manual processes. Finance teams continue to rely on spreadsheets and email approvals. Disjointed systems for managing critical business processes such as expense allocation, vendor payments, contract oversight and payment execution remain the norm. We spend way too much time, energy and money paying bills, allocating expenses, booking entries, booking wires, and all we get out of it is a paid bill.

The consequences of manual processes and fragmented infrastructure include inadequate allocation, misallocations, delayed payments, compliance risks and finance teams constantly playing catch up. This is simply unacceptable in today’s environment of high investor expectations and constant pressure to reduce costs. In fact, the SEC has already stated that expense allocation is a 2025 examination priority. Cost assignment across funds, strategies, entities and geographies is an area where regulators not only in the US, but also around the world, expect transparency. As a result, automation of financial operations is table stakes for hedge funds, private equity firms, asset owners and asset managers who want to scale while simultaneously minimizing operational risks.

A Major Bottleneck: Expense Allocation in Alternative Investments

Even with all the advances in portfolio management and trading technologies, expense allocation remains a problematic area for alternative investment firms. It consumes resources, time and effort without producing any tangible benefits. Hedge funds, for example, deal with a variety of expenses such as trade execution costs, soft dollar arrangements, market data services, legal costs and research fees. Every invoice, vendor and payment associated with these expenses must be matched to the right fund, strategy and entity. Transparency into contractual terms is also critical for optimizing workflows. All these operations are invariably done manually and lead to mistakes. Even one expense split incorrectly can lead to profound consequences downstream. Firms managing complex fund structures such as master-feeder setups, parallel vehicles and separately managed accounts, can very easily experience a cascade of errors. Identifying the root cause of these errors after the fact becomes another manual exercise.

AI and ML-driven Automation – The Lever to Generate Alpha

The most innovative fintech platforms are transforming financial operations workflows at alternative investment firms. Cutting-edge artificial intelligence and machine learning technologies enable digitized, end-to-end automation of vendor management, contract oversight, expense allocation and payment execution. Such a modern platform would have the following attributes:

  • Vendor Management and Contract Oversight
    • Vendors, contracts and payment terms are stored centrally.
    • Custom multi-layer expense allocation rules are implemented and standardized.
    • Automated alerts regarding upcoming cancel lead times and auto renewals.
  • Automated Invoice Processing and Expense Classification
    • Artificial intelligence and machine learning to capture, extract and process data from invoices, and choosing workflows, including a human loop of support to review.
    • Intelligent classification of expenses based on custom built and predefined allocation rules using unlimited underlying attributes.
  • Streamlined Approval Workflows
    • Approvals are routed based on the rules, policies and thresholds defined by the firm.
    • Audit trails that ensure the appropriate review of expenses and their allocations.
  • Single Click Payments
    • Direct payments through a single click via ACH, RTP, USD and cross-border wires.
    • Integration to general ledgers for both the management company and the funds for automatic booking to ensure accurate financial reporting and easy audit.
    • Real-time, robust and dynamic reporting from the highest to lowest level of detail for rapid, informed decision making.

Digitizing and automating every step of the operational workflow empowers firms to eliminate bottlenecks, ensure compliance and achieve real-time visibility into cost structures.

Cloud-native platforms with Modern APIs

Lack of interoperability across financial and fund technologies is one of the biggest hurdles to achieving streamlined, automated workflows. Data sits in disparate systems. The silos are a real drag on efficiency. The latest generation of fintech platforms that are born in the cloud with modern APIs sit above these disparate financial and fund technologies. They serve as the connective tissue by enabling real-time, bidirectional data flow, delivering intuitive dashboards and mitigating compliance risks.

Automation: The Time to Act is Now

Automating processes, enhancing efficiency and reducing errors created through manual processes are strategic imperatives of alternative investment firms. Why is it so important to act now? Simply put, regulatory scrutiny, margin compression and investor expectations make automation of vendor management, contract oversight, invoice processing, expense allocation and payment execution non-negotiable. The firms that are replacing spreadsheets and email chains with rules-based automation are the ones positioned for success and scale, as they will mitigate risk, enhance efficiency, and foster strong investor relationships.

Steven Petersen and Avtar Batth are the co-founders of Stavtar, a leading fintech company that fully automates end-to-end business spend management for alternative investment managers. Stavtar’s flagship Office of the CFO platform, StavPay, is currently used by more than 100 alternative investment managers with over $2.3Trillion of assets under management and growing rapidly.

This article was originally published in TabbFORUM on May 27, 2025. 

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