What does differentiation look like for a Private Equity fund manager?
This is a rather loaded question so let’s break it down. We’ve covered the building blocks for processes and systems that capture and warehouse data so that Private Equity firms can leverage new insights.
Now, with Altvia’s VP of Customer Success, Jill Montera, let’s discuss how this foundation can lead to differentiation.
Differentiation is the result of efforts to make a product or brand stand out as a provider of unique value to customers in comparison with its competitors.
How does this translate into private equity?
In Private Equity, differentiation oftentimes stems from a firm’s “secret sauce” for how they source deals and find the best investment opportunities. This typically involves intricate processes and models to produce the best returns and ultimately differentiate from the competition.
While this has worked for a long time, differentiation is changing. Many of our fund manager customers are in the process of raising their 8th or 9th fund and they are looking at how to continually improve investor perception and deliver more value-add services (on top of performance). So differentiation is not just performance but the entire experience. This raises three questions:
- What is the investor experience?
- How are investors getting information?
- How are their requests being met?
Is information coming across in spreadsheets or in branded, visually enhanced formats that are easy to understand and access? As a trusted advisor, we look at the big picture to understand what differentiation means to our customers and then collaborate to establish the processes and systems/tools to make it happen.
Key point: differentiation for Private Equity fund managers involves the whole wrap of the investor experience – what unique practice do you have to stand out in the crowd?
In managing the investor experience towards the goal of differentiation, there are a number of variables that affect the dynamics of this relationship from clear and consistent communications to reporting and transparency.
For example, communications, frequency, personalization, and tracking are among key requirements to consistently connect with investors and provide updates as well as official investor documents. While personalized communications like this via Altvia Correspond Investor Edition certainly work well.
Investors also expect 24x7x365 access to investment-related materials at their convenience. This is why an LP portal is so critical – it actually becomes the “hub” of the GP-LP relationship.
For instance, fund managers using ShareSecure can securely post and share documents along with multimedia files with investors and then track materials that are viewed – a great insight to see what’s really relevant and important to your investors.
For your investors, this LP portal delivers a high-touch user experience that’s all about ease-of-use to ensure they get what they need, quickly, and you get fewer questions and requests that strain your front and back office.
Another key component of the investor experience that’s part of differentiation is reporting – what type of data is reported, and how this data is delivered to the investor.
For instance, if quarterly reports are capturing the conventional data points and are delivered in spreadsheet format, the investor perception is rather lackluster – nothing special.
Yet if the quarterly report offers additional data points with new insights presented in a visually rich format, then there’s a clear opportunity to really engage with the investor about this information.
This is the direction of data in the world of Private Equity – going beyond the static report to interactive data that provides fund managers and investors new insights that lead to discoveries and answers to questions they didn’t even know they had.
How to lead for success in private equity
In the SaaS world, there’s always an ebb and flow of being proactive and reactive. In Private Equity, for a long time, it was more along the lines of being reactive to information and data requests from investors. Fund managers would over time build processes to meet these requests and then add technology-based tools to gain operational efficiency.
To really provide value to stakeholders and investors, fund managers need to be more proactive and avail information in highly consumable ways. The value of the GP-LP relationship is based, in part, on the fund manager getting in front of these requests, providing key data in a visually enhanced way that’s easy to understand and easy to access for investors. It has to be progressive.
Enabling more meaningful and visually enhanced data reporting is actually a process and you have to go through certain steps to establish this process – i.e., operationalizing investment data, capturing institutional knowledge – that makes your data-rich enough for modeling, insights – data points that go above and beyond.
By interacting with the data and leveraging new data sets, fund managers are able to make new discoveries – with a full spectrum of data visualization. Now, the fund manager has a whole new set of questions – like never before – because of how the data is connected, presented, and made easy to understand. Through enhanced reporting for investors, these discoveries can be shared to further strengthen both investor confidence and transparency.
The fund manager has become differentiated from the rest – it’s the reward for many years of creating a process for how data is captured, warehoused, analyzed, and harnessed.