In what area is the need for data management for PE firms?
I don’t think you can ever diminish the importance of covering yourself from a compliance perspective, but if you’re talking about what’s driving fundraising and returns from a data management standpoint, then I’d say there are two areas.
One stems from the fact that LP’s have been getting more rigorous with the quantitative analysis they perform on their returns. Because of this, it’s never been more important to have a robust capability for capturing detailed investment performance metrics in a way that can be shared with your LP base. More than simply expecting quality returns, LPs have increasingly high expectations about transparency. At the same time, there’s been general downward pressure on management fees over the last several years. High quality data management is a key to meeting those increased transparency demands from LP’s without inflating the headcount and workload of the middle office functions and ultimately a firm’s bottom line.
The other area where data management is driving performance is in helping firms get better at capturing and structuring qualitative, institutional knowledge that is so important in the alternative investing industry. It’s not called private capital for nothing–reliable, fungible data is hard to come by. Being able to capture and, more importantly, connect the disparate information that folks across the firm pick up when conducting business can create a very significant knowledge advantage. Many times, investment and marketing teams are geographically and logistically asynchronous making in-person collaboration and knowledge sharing impractical. For all of these reasons, data management is key to creating that knowledge advantage.
Is demonstrating an efficient data management system critical?
Absolutely. For the reasons I just mentioned. LP’s want to know that they’re going to have a clear view into what’s happening with their money once they commit to a fund or to a period of service.
What role do CRM systems play in helping firms meet ILPA standards?
I think a lot of people are watching it but I haven’t personally worked with anyone who is really getting out ahead of the crowd and proactively updating their systems to meet ILPA standards. And to me, waiting makes sense – it hasn’t become a true standard yet and it won’t be a simple task.