Alternative investments represent significant opportunities for portfolio diversification and enhanced returns, yet their growth is consistently hampered by operational inefficiencies — particularly Not In Good Order (NIGO) transactions. These processing errors create substantial friction that dampens investor interest and slows industry expansion.
The NIGO Challenge in Alternatives
Alternative investments inherently involve more complex subscription processes than traditional assets. When paperwork or digital documentation arrives incomplete, incorrectly formatted, or missing required elements, it’s flagged as NIGO. This triggers a time-consuming correction cycle that frustrates all parties involved.
The alternative investment space suffers disproportionately from NIGOs due to:
- Complex documentation requirements involving multiple parties
- Higher compliance and regulatory standards
- Varied and non-standardized processes across different fund managers
- Greater information requirements to satisfy accreditation standards
The Growth-Inhibiting Effect
NIGOs create several barriers that directly impact alternatives growth:
Extended Funding Timelines: While traditional securities settle within 2–3 days, alternative investments regularly take 2–4 weeks — and NIGOs can extend this to months. This delay reduces liquidity and creates opportunity costs for investors.
Increased Operational Costs: Each NIGO necessitates additional administrative attention, verification steps, and communication cycles. These expenses are ultimately reflected in higher fees or reduced returns.
Deterrence of New Participants: First-time alternative investors face a steep learning curve. Initial NIGO experiences often prove sufficiently discouraging to prevent follow-on investments.
Advisor Hesitation: Financial advisors, aware of the operational burden NIGOs create, may steer clients toward simpler investment options despite potential benefits of alternatives.
Root Causes in the Alternative Investment Lifecycle
NIGOs frequently stem from:
Document Complexity: Subscription agreements for alternatives often exceed 50 pages with numerous signature requirements and technical terminology.
Manual Processing: Despite technological advances, many alternative investment processes remain paper-based or rely on disconnected digital systems.
Inconsistent Standards: Unlike traditional investments with standardized formats, alternatives lack industry-wide documentation standards.
Information Silos: Data moves between multiple parties (investors, advisors, fund managers, administrators) with different systems and requirements.
Are Current Documentation Methods the Problem?
Traditional paper documentation creates obvious inefficiencies through printing, signing, scanning, and shipping delays. However, PDFs and even DocuSign implementations often perpetuate rather than solve these issues when implemented as mere digital versions of paper processes.
While these technologies offer incremental improvements, they fail to address the fundamental need for standardization, validation at point of entry, and seamless data transfer between systems. True progress requires comprehensive straight-through processing solutions specifically designed for alternatives’ unique requirements.
Until the industry addresses these fundamental issues, NIGOs will continue to act as a significant drag on what could otherwise be a more rapidly expanding segment of the investment landscape.
Emerging technologies are working to address these challenges in a data first environment that delivers straight through processing and digital information transmission.