“To outsource or not to outsource,” was the lead question from PEI’s editor, Graeme Kerr, for their Fund Administration Special 2017. And with further consideration, the question isn’t whether to outsource, but rather to what extent? CFOs and COOs are under increasing pressures for regulatory requirements and LP transparency that are pushing their back offices to the max. As a result, new strategic goals are being set with a spotlight on technology to help solve the expanding number of services needed to fulfill these demands as well as the volume and complexity of data needed to drive these services. To tackle this market problem, the Fund Administration Special brought together five technology experts to answer the big questions facing Private Equity firms. Altvia’s CEO, Kevin Kelly, is among the technology consultants featured in Ask the Experts, and shares these insights:
How can I manage our data better so I spend less time in the swivel chair switching between disparate systems?
Capturing data from multiple sources into a central system is one of the primary challenges for private equity firms. At the time of investment, LPs are seeking visibility into revenue multiples and other indicators that support the fund manager’s investment thesis. They are increasingly aware of the impact of multiples paid on expected returns and want the data to further inform this thinking and to be able to benchmark managers. For portfolio companies, LPs want to understand the numbers that the manager is using for the value of a company at any given time since that rolls into the net asset value of the fund. This is the puzzle yet the pieces are strewed about in several disconnected systems, causing massive amounts of ‘swivel chair’ work to pull the puzzle together from different systems to gain insights from the data. There are countless examples of disconnected data ranging from investor transparency to ESG. Data management is the key. A central system that can capture, consolidate, and integrate data from these disparate systems is the cornerstone. As the data gets connected, private equity firms can have the full spectrum of data points to build the models, benchmarks and ultimately transform data into insights for better decision-making.
We are being asked for ever more complex sets of data. How should we be looking to improve our data management?
Fund managers are looking to the value creation that more structured data management offers to address the ever-increasing complexity of data needed to fulfill regulatory requirements and investor demands, and to provide the intel to compete for capital and deals. There’s usually a twofold process: establishing best practice workflows and then identifying the right tools to support and drive these practices. Once a baseline for the business has been established, you can align the data management system to those processes. While there are a number of systems available, it’s important to consider the level of customization, integration and scalability you need over the longer term so that the system can evolve as your business grows. Moving to a more structured data management system comes at a price, but the opportunity cost of failing to recognize and invest in the software is significantly higher than the cost of implementation. Those private equity firms that invest in the right data architecture will gain a major informational and competitive advantage.
As back offices feel the strain of increased regulatory and LP scrutiny, it leaves no doubt of the complexities faced in the world of fund administration. The private equity industry is adapting to a new call to action to help solve this growing pain and what’s clear is that innovative solutions are required. And for these solutions, technology is by far the fastest-growing area to answer the call, which is why technology consultants like Altvia play such a critical role in a modern Private Equity firm.