Private equity (PE) firms recognise the value of increased transparency and more effective data management, according to a research study by TABB Group.
But in a world that demands to be kept informed, those firms need an on-demand ability to transform data into useful, digestible, reportable information – intelligence that can be used to meet stakeholder demands and at the same time improve the quality of their decision-making.
The challenges for many of these firms, says Adam Sussman, a TABB partner and director of research who produced the study in collaboration with SunGard, are operational deficiencies preventing them from delivering the intelligence they need to support stakeholder reporting and their investment decisions.
“Although the quantitative and qualitative research that TABB has conducted indicates general partners (GPs) have invested in technology, document management and data dissemination remain a challenge for over 60 per cent of them.”
To assess the current approach PE firms use to manage data, TABB surveyed 119 senior PE executives across the US, Europe and Asia. Nearly 33 per cent have assets under management (AuM) of more than USD5trn, deploying a range of strategies, including buy-outs (24 per cent), venture capital (20 per cent) and funds of funds (17 per cent).
With many PE firms currently underperforming, facing a shift in power from GPs to limited partners (LPs) – some large PE firms service hundreds of LPs – and a competitive fundraising landscape, Sussman says their interest in data transparency and accuracy demonstrate the importance of data management in four key areas:
· Investment decisions: more than one in four firms believe that achieving their data management objectives will result in at least considerable improvement to the quality of their investment decision-making
· Investor reporting: only 23 per cent currently provide access to interactive investor reporting, although 70 per cent flag its importance to do so; 33 per cent claim that producing on-demand performance reports is challenging
· Operational efficiency: 67 per cent see operational efficiency as the most important goal of their investment-management platform
· Regulatory compliance: regulatory reporting poses a significant challenge for 39 per cent of the firms; only 25 per cent believe they have the necessary system integration
As improvements are made and benefits accrue to the LPs, Sussman believes the PE industry will prosper.
“When LPs can more easily compare the performance and performance attribution of various GPs, the competition for assets can become more targeted at specific areas of value and differentiation. Allocations to private equity could see even further increases as some of the limitations of the asset class are resolved. A virtuous cycle of efficiency and transparency yields greater investor confidence, lower cost-to-income ratios and a stronger competitive environment. These will be the just rewards for PE firms that not only make the right investment decisions, but also the right investments in their own business.”
