Data Science in Private Equity

The vast majority of PE firms are still not taking advantage of big data and rigorous investment analysis. 1985 was probably the year with the most significant technological advancement in PE. For any Microsoft nerds, you might have guessed. It was the year Excel was released on Windows.

?The data PE firms have access to today is unimaginable. Some top firms have already moved into a cloud environment and Python Jupyter notebooks. However, 99% are still lagging. The ability to analyse this data will be critical for a PE firms success in the future. Where do data scientists fit in?

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Data Scientists at PE firms are creating ways to source more deals and predict value post-deals more accurately. Competition is fierce in the PE/VC space right now. We’ve all heard of certain feline funds increasing velocity, volume and valuation. It is not a coincidence that these are the funds that have invested in data processing technology, built good relationships with data vendors and, of course, hired great data scientists to partner with their deal teams and investment committees.

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Data is everywhere, and statistical modeling can uncover insights in ways that a pivot table can’t. Smart PE firms are taking advantage of credit card receipts, web clicks, geospatial, satellite imagery, workforce, social media sentiment, and many other types of data available out there.

?What’s more ironic than the hedge funds that have been investing in this technology for over a decade, private equity firms have access to a lot more data than traditional hedge funds. This is because there are vast amounts of data hidden within their portfolio companies, which is not being utilised to its fullest potential.

?Value creation is another area where data scientists strive to generate high ROI. Data Scientists can help you identify areas of improvement across most businesses, whether it’s marketing, sales, risk, or improving your products.

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So what do you need? Aside from the apparent data infrastructure and technology. Perhaps the hardest thing to do is incorporate and build a data-driven strategy and culture across the firm. Invest in leaders and data scientists who can bridge the divide between traditional approaches and advanced statistical analysis.

?Many firms have already taken steps to move forward in this direction and are seeing huge returns. For the past eight years, I have personally helped PE firms and traditional hedge funds build data science teams. We can discuss organisational change, talent planning, data strategy, compliance, and approaches that have worked and the ones that haven’t.

If you’re ready to incorporate data science into your deal processes or portfolio operations, please contact me for a confidential discussion.