Key Private Equity Trends for Fund Managers and Institutional Investors
Private equity continues to deliver despite growing volatility in public equity markets, heated competition, and a slowing global economy. But what’s ahead and what forces will shape the industry?
Private equity has never been intensely involved in politics, but there are a handful of political issues that continue to be meaningful—carried interest taxation and the future of the Dodd-Frank Act are two examples. They have the potential to impact private equity significantly.
Notwithstanding any unanswered political questions, institutional investors can be assured that the fundamentals remain healthy. Lawmakers seem to be focused on growing the economy at a faster rate than we’ve seen in recent years. Consequently, private equity seems poised to continue its steady growth in the near term and to have good long-term prospects, as well.
Coupled with this momentum in private equity is investor appetite. Understanding the GP-LP relationship in relation to current market dynamics is vital.
This is always an interesting dynamic to watch. The public capital markets have responded favorably to the results in recent presidential elections. If markets remain healthy, this will create more competition for LPs and tip the scale further in their favor.
Of course, as institutional investors know, one capital market is not a replacement for another. But momentum in publicly traded markets certainly has the potential to impact the private equity markets and, in turn, impact the relationship between GPs and LPs.
Fundraising is more competitive than ever, which means fund managers must take action to differentiate themselves.
We’re continually exploring and sharing thoughts about the potential for technology to be a key driver of competitive differentiation. And, it’s difficult to find areas that offer more gains than technology.
Technology continues to change the world rapidly by making us all more efficient, extending our networks, and enabling us to communicate in ways that weren’t possible previously. Private equity has historically been relatively slow to adopt technology compared to other industries. However, firms are increasingly aware that there are many ways that advanced solutions can help private equity managers differentiate themselves from their competition and connect more effectively with institutional investors.
And those solutions don’t necessarily have to be crafted entirely from new systems. In fact, at Altvia, our vision for redefining the way GPs, LPs, and portfolio companies communicate and relate involves technologies that many large, consumer-facing businesses are already using with great success to:
- Better understand their network
- Improve their relationships within that network
- Be more efficient at servicing and communicating with that network
- Having the data to service and support that network
But many fund managers still are not taking advantage of these significant differentiators. Of course, there is reason to believe that we’re still in the early stages of this next phase of private equity’s evolution.
If some of the B2C markets that were early adopters of the latest technologies are any indication, the returns will be impressive and will create outstanding differentiation for those who adopt them.
From institutional investor requests to compliance reporting, the pressure is on fund managers to capture, track, and report on an enormous amount of data. This shift is driving efforts related to synchronizing operations with rapidly evolving digitization.
As technology advanced in recent years, its first impact was in the generating and storing of large volumes of data. Today, we’re in what you might call the golden era of data—a time when we’re starting to reap the benefits of using data to inform and drive decisions.
Both of these roles—generating and leveraging data—remain important to everyone from fund managers to institutional investors. However, smaller, service-oriented industries like private equity don’t have the luxury of scale that, for example, large manufacturing companies do.
Nevertheless, there are plenty of opportunities to use technology to make fund managers more efficient. In doing so, the key will be capturing and harnessing meaningful data derived from their activities. Said simply: The key to making firms more successful going forward will be empowering them with technology that makes them more efficient while simultaneously capturing and leveraging the data that comes from their work.
That’s a private equity trend that fund managers, institutional investors, and other stakeholders can surely get behind!