By Katey Bogue, Head of Private Fund Solutions, Nasdaq Private Fund Solutions – As the size and importance of private fund portfolios continue to scale rapidly for LPs, so too do the complexities of raising and reporting for GPs. There are increasing volumes of portfolio data to harness, more demands from investors to address, and more operational risks to navigate.
By Katey Bogue, Head of Private Fund Solutions, Nasdaq Private Fund Solutions – As the size and importance of private fund portfolios continue to scale rapidly for LPs, so too do the complexities of raising and reporting for GPs. There are increasing volumes of portfolio data to harness, more demands from investors to address, and more operational risks to navigate.
GPs looking to secure their place in tomorrow’s private markets must ensure their fundraising operations and technologies are helping, not hindering, them on the path to their next hard cap.
We have developed these five key questions to ask of your current operations through our experience working with hundreds of GP and LP clients, from the industry giants to burgeoning funds. We hope they help you in assessing your readiness for today’s fundraising environment.
1. Do we know our portfolio as well as our LPs do?
Over the past 18 months, the need for information about private fund portfolios has accelerated, and its impact on LP-GP relationships has been magnified. LPs are digging deeper into their existing holdings each quarter and also into longer-term performance when evaluating new opportunities. The result is more, and tougher, questions for IR teams to answer.
When every touchpoint with an LP is influential in contributing towards securing (or not) your next commitment, answering complex questions about portfolio performance efficiently and comprehensively is fundamental to create trust and confidence.
Yet many GPs are restricted in their ability to do so due to their current tech stack. Rigid portfolio management tools typically only provide GPs with high-level views on performance, and rarely deliver the depth of insight or analytics flexibility required.
Ask if your tech stack forces your team to spend the majority of their time being reactive in servicing LP questions; or are they equipped to be proactive in portfolio analysis and to view your track record through the eyes of an LP? Do they have the ability to easily delve beyond the fund-level returns, flag the potential questions that might arise, and construct compelling answers?
2. Does our team have access to market data? Or market intelligence?
When it comes to gathering insights on investors and their competitors, many GPs rely on data sources where information is static and flat, lacking context. This data discloses what happened, but not why – and certainly not what is likely to happen next.
True market intelligence goes deeper.
Ask if your current data providers can help you easily answer questions such as:
- Why has an LP changed asset allocation?
- Why did they commit to a competitor’s fund? And how did that competitor pitch?
- How is this investor planning to execute their commitment pacing in the future?
- How is the advice of their consultant altering their appetite for a fund like ours?
Without being able to answer these questions, fundraising teams can spend too much time chasing the wrong investors and are ill-equipped to position their fund in the context of an LP’s program, the market and their peers’ activity.
3. How confident are we in the integrity of the portfolio return information we distribute internally and externally?
When it comes to providing internal stakeholders and also LPs with cuts of your performance, how much manual intervention goes into extracting the information? Is your team comfortable in ensuring the most recent data is being used? And what safeguards are in place to ensure the data going into a system is valid in the first place?
Non-specific tools – spreadsheets or even business intelligence tools – are often defaulted to when a portfolio management tool can’t deliver the more sophisticated analytics you and your LPs need.
The issue is these tools still need a lot of manual interaction to build formulas or produce various cuts of a portfolio, which creates unnecessary risk.
Ask if your tool of choice offers:
- Automated data processing and quality checks to flag and eliminate data entry inaccuracies.
- A centralised repository for portfolio performance data to eliminate version control issues.
- A purpose-built calculation engine to eliminate manual formula errors or inconsistencies.
- Analytics tools that you don’t have to be a data scientist or developer to use.
4. Is key information on our current and potential clients democratized across the firm?
As you expand your tech stack and add new tools and data sources to support capital raising, it’s important to be conscious of the risk of information siloes being created. Reasons this usually happens include a) outdated software licencing models that penalise you for having lots of users or multiple teams equipped with access, or b) a lack of integration with other key systems.
CRM adoption is now more widespread throughout the industry and so integrating intelligence for fundraising into what should be your system of record can be transformative to your operations.
Supplementing the information you collect about investors or clients through your day-to-day interactions with the deeper market data that third-party providers can offer via API technology has the power to take the value of your CRM to a new level. Information that was previously hidden to most of your users is now illuminated across your organisation for greater knowledge sharing.
5. Are you equipped to deal with increasing demand for liquidity by investors?
The recent boom in the secondaries market is in some ways a renaissance. Secondaries have transformed from an instrument used primarily as a distressed play to a savvy portfolio management tool. For many, it’s a welcome evolution in the market. As a GP on our Industry Advisory Board recently put it, “greater liquidity options for investors are a clear win-win”. The revived secondaries market gives investors greater flexibility, and in turn makes the asset class a more attractive avenue for driving AUM growth.
At the same time, the recent boom in volume has highlighted for many GPs how cumbersome and inefficient the existing secondaries process is.
Many of the secondaries technology solutions currently available have solely focused on connecting interested parties with one another. This is obviously a requirement but just a starting point. The reality is that these tools do not ameliorate the significant operational burdens of the process: the cap of 2 per cent of NAV that can be transacted annually to avoid becoming designated a Publicly Traded Partnership (PTP), onerous document collection and signing processes, and challenges in tracking the process of various transactions running concurrently, for example.
