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New models of efficiency for private equity general partners

By Jonathan Broch (pictured), Head of Strategy for Private Equity, SunGard – While operational efficiency is a concern for most financial institutions today, private equity general partners (GPs) face their own unique challenges. As the demands for information continue to mount, to what extent can specialist private equity software and the right operating model create a winning combination?

First, let’s examine GPs’ priorities when it comes to efficiency. At the most rudimentary level, GPs have an obligation to report to investors on the activities of the fund, typically on a quarterly basis. At the same time, internal stakeholders need access to information to make informed investment decisions. Adding further strain is the fact that most GPs are now subject to multiple regulatory reporting requirements. All of this adds up to increasing demand on a relatively constrained pool of resources. 
The irony, and perhaps the silver lining as well, is that these information requests – be they from investors, internal stakeholders or regulators – rely on an overlapping set of data. With a well thought out data management strategy, a GP can effectively put in place the systems and processes to collect, organize, validate and store information across its investor base, the activities of the fund, and its portfolio of investments. This creates the type of leverage – a concept very familiar to GPs – that builds scale for the organization and addresses the full spectrum of information demands.
For a GP, one of the areas that often benefits dramatically is the generation of investor notices for capital calls and distributions. Particularly in the case of a capital call, a GP is up against the clock and needs to notify investors so that it can receive the capital and move forward with the funding of its investment. But there can be many steps to making that happen, and GPs often have to cut through multiple complexities to get notices out of the door. To name just a few, there may be side letters, opt outs or complex structures involving parallel or master-feeder funds. LPs may request consolidated notices or ask for supporting schedules such as the ILPA templates. Contact data for investors needs to be accurate and up to date. Without the right systems in place, this can make for one very long and hectic day in the back office of a GP.
With budgets constrained, smaller GPs especially are looking for ways to improve their overall position without proportional increases in expenditure and headcount.  Traditionally, private equity firms have attempted to bolster their operations by adding to their back-office resources. But many now realize that robust infrastructure and private equity software can provide a longer-term and far more cost-effective solution to efficiency challenges – and even more besides.
According to a global survey by TABB Group[1], 92% of private equity firms acknowledge the critical role that technology can play in improving the quality of investment decision-making. The majority also grasp that technology is vital for achieving the highest possible levels of efficiency. But all too often, firms’ infrastructure can stop them attaining the operational standards they aim to achieve.
A lack of integration between systems and widespread use of manual processes continue to undermine efficiency for many GPs. It thus makes sense that the reverse – a consolidated, automated platform – can help reduce back-office costs and pressure. By integrating front-, middle- and back-office processes through a single private equity software solution, firms can better manage their reporting, regulatory and administrative challenges, while improving risk management and decision-making.
That said, technology alone cannot create efficiency. Attempting to put in place systems and processes without access to the right expertise can short-change an investment in technology – or worse, lead to failure. According to Computer Weekly, the cost of failed software projects is estimated to be more than USD75 billion in the US alone.[2]
Beyond implementation, progressive private equity software providers now complement their solutions by offering additional managed services. These provide cost-effective opportunities for GPs to hand over the day-to-day hosting and running of specialized business applications to technology experts, who can also take on key business processes. Such innovative deployment models have recently helped one large global GP save 280 hours a quarter on financial reporting – and another to increase assets under management by 60% with the same headcount.
So, while the need for operational efficiency is greater than ever for GPs, there are now more means to achieve it. By making the right investments in their own infrastructure, firms can redefine their operations and set new standards for both data management and efficiency as a whole.


[1] TABB Group, Transforming Data into Intelligence, January 2014
[2] Computer Weekly – Calculating the Cost of Failed Software Projects, December 2007

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