“To outsource or not to outsource?” was the lead question from PEI Editor Graeme Kerr for their Private Equity Fund Administration Special 2017. Although, in reality, the question isn’t whether to outsource, but rather to what extent?
CFOs and COOs are under increasing pressure from regulatory requirements and being asked for more LP transparency. And those factors are taxing their back offices to the max.
As a result, new strategic goals are being set and a new emphasis is being placed on technology to help address the growing number of services needed to meet these demands.
Purpose-built technology is also becoming more critical as the volume and complexity of data needed to provide exceptional service increases.
To tackle this market problem, the Fund Administration Special brought together five technology experts to answer the big questions facing private equity firms.
Altvia CEO Kevin Kelly is among the technology consultants featured in Ask the Experts. Paraphrased here are his insights on a couple great questions:
My role includes private equity fund administration.
How can I manage our data better so that I spend less time in swivel-chair mode, switching back and forth between disparate systems?
Capturing data from multiple sources and combining it in 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 the manager uses 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 that needs to be completed from pieces that are strewn about in several disconnected systems. And as noted in the question, the result is massive amounts of “swivel chair” work to pull the complete picture together from different systems and gain insights from the data.
Unfortunately, tasking people with that type of busy work means you aren’t getting as much from their skills and perspectives as you could.
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 models and benchmarks, and ultimately transform data into insights for better decision-making.
Private equity fund administration is getting more challenging.
As we’re 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 that more structured data and better data management offers as a way to address the ever-increasing complexity of the data needed to fulfill regulatory requirements and investor demands. That complex data is also the source of the intel that firms need to compete for capital and deals.
Improving a firm’s private equity fund administration typically involves a twofold process:
- Establishing best practice workflows and then identifying the right tools to support and drive these practices.
- Once you establish a baseline for the business, 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.
You don’t want to adopt a solution only to have to make major changes to it or your processes later.
Moving to a more structured data management system comes at a price. The cost of lost opportunities as a result of failing to recognize and invest in the software is significantly higher than the cost of implementation.
Private equity firms that invest in the right data architecture gain a major informational and strategic advantage.
Better Fund Administration Processes are Essential… and Achievable
As back offices feel the strain of increased regulatory and LP scrutiny, and improved fund administration processes are required, firms have to adapt.
The private equity industry is helping to meet this need and address this pain point with innovative solutions. New technology is by far the most efficient and effective way to answer the call.
That’s why private equity technology companies like Altvia play such a critical role for firms looking to gain a competitive edge.