Private Equity Tools to Build Trust with Investors
There’s no question that Private Equity is booming. Investors have allocated more capital to this space over the past five years than at any time in history, according to Bain & Company’s Global Private Equity Report 2018. In addition, Pitchbook reported that a remarkable 23 startups have earned unicorn valuations so far this year.
At the same time, deals are becoming more complex and the Securities and Exchange Commission (SEC) is tightening regulations. Naturally, this calls for greater scrutiny before deciding to invest. Let’s say a company offered to double investors’ money in six months, but couldn’t disclose where the money was going or how the returns would be generated. Understandably, most investors would be hesitant to broker a deal.
For Limited Partners (LPs), transparency has become critical to their decision-making process. Before investing, LPs demand an understanding of how the data supports higher level calculations and how it will impact their investments. As a result, LPs expect companies and investment funds to disclose more detailed information, including the nature of their investments, compensation to their managers, liabilities, overhead costs, and investment performance.
It’s no longer enough to simply put together a nice looking report with pie charts and bar graphs. These days, the success of your business depends on understanding the impact of the relevant data—and sharing it openly with all stakeholders involved. After all, if you don’t, your competitors surely will.
Tech Solutions Simplify Transparency
As LPs demand more transparency, many private equity firms are adopting technologies that give them the capabilities to organize, track, and present insights from the huge amount of data available.
A well-organized fund management software system, for example, can help track where you are in the fundraising process and easily communicate status updates to investors.
On the investing side, a fund management software system can provide a central database containing all of your investor contacts, so you have a recorded history of communication and a full-picture of the investor relationship.
If you’re putting together monthly or quarterly updates, for example, a well-organized contact and data management system gives you the power to share documents in a secure fashion and have visibility into how often your investors are accessing the information. Even better, it can help you automate reports and communications so your investor relationships don’t take up so much time.
Of course, the first step—before you even adopt a software solution—is to determine the information about which you want to be transparent. With that list in hand, your firm can create a process to collect the relevant data, whether it’s financial or non-financial, and share it with your LPs.
It’s also worth noting that members of the C-Suite are calling transparency critical, according to Deloitte’s Effective Investor Relations (IR): Lessons from the Trenches:
“In our case, management is executing on a five-year turnaround plan….and helping investors understand what the milestones are and what they can reasonably expect along the way is incredibly valuable,” says Rob Binns, former VP of Investor Relations at Hewlett-Packard, who now serves as CFO and VP of HP Software. The feedback from investors, he adds, is that “they welcome an honest, straightforward story—they don’t want to be sold to, they don’t want to be spun to.”
Altvia has developed data and technology solutions specifically for the needs of private equity firms like yours. Our AIM solution combines the Salesforce platform with Answers, our BI tool that connects your data and Investor Correspondence to provide clear, secure, and easy-to-understand reports and communications to LPs.
In our next post, we’ll explore the stages of the Investor Experience and how Private Equity firms can proactively manage their LP relationships.
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