What is the Data Challenge in Private Equity?

What is the Data Challenge in Private Equity?

Technology and Report Transformation = Value Creation

By: John A. Bova

?

It may be cliché to say that the GPs, CFO and CCO of Private Capital funds are the ones who really need data for compliance accounting and LP reporting in a fund structure.?Well, the truth is they are the ones most connected to the valuation, quarterly reporting cadence and ultimate decision makers on fund management, fee classification and disbursements.?Disbursements in a private fund structure are simply different than any other commercial entity. This is part due to the stringent and complex classification of fees, expenses and the vital waterfall calculations and their impacts. Ever advancing governance and compliance requirements have required greater transparency and clarity in reporting. This will continue to drive the direction of an operation.

For the past decade plus the private equity world has been messaged and sold to for every possible outsourced service they could ever require, desire, and need for a future unknown. The focus of most the solutions have been software to organize, disseminate and report on disparate and complex data sets.?Those sets evolve into reports or stages of reports to solve ever changing and modification of governance and transparency requirements.?Hence proliferation of software occurs, and this is a natural evolution of all enterprises.?Unfortunately for PE firms the silo effect is more damaging than most enterprises. The lack of integrating into the other fund functional area evolutions do not occur.?Perhaps due to lack of large transformational thinking from an operational perspective is occurring. Over time firm evolution, growth/excellence/succession of leadership issues?( those outside the AUM of fund size) is simply not considered or addressed.?Perhaps firms on fund 1 or fund 2 today have the benefit of faster evolutions of needs and capabilities. Ultimately for funds that matured over the past ?20-30 years had different evolutions and pressures and response that create ( mostly unknowingly) an unaddressed pile of unincorporated and integrated data into thinking.

?The needs represent some of the most intriguing conversations in funds as to how we got here, what need to do but who will own the execution to create the data structure/reporting internally that we need go-forward. Also, some deeper consideration how the portfolio companies can benefit.?In addition to benefit the further conversation of scale and reporting that?roles up to the fund can take place. Decision ownership, decision making is the focus . This is big step considering the business model has been one where consensus in leadership versus best idea has been the method and model.

?Private Equity firms have always had the benefit of being a nearly complete outsourced model in the many area of reporting, IT, data governance and management. The challenge or debate has clearly been a battle of; do we own the capability vs a stronger management of performing the function via best-in-class 3rd party solution specialists. The consideration and investment has to be done.?Is this the solution route or transformation path addressing the “what of data problem”??

?Somewhat related and over time if not addressed does become a more defined root cause area of lack of transformation.?Data develops, accumulates, and requires much more gathering, organizing, understand of what a fund receives from portfolios month after month, and valuations for quarterly LP reporting. There needs to be data ownership in the fund for the purpose of organizing its value as an asset and charting a course that crosses overs that could impact the other side of the fund.?The back office operation.

A potential root problem that comes out through the transformation and consideration on data comes via the aggregation of month end reporting packages from portfolio companies.?Could the core data and information nuggets come from an integrated and data set for portfolio operational transformation and GP suites together??Well, the root cause and perhaps the needs of the data come together here.?Then choosing the build versus outsource solution is one of economic imperative and efficient versus why and do we need this actually need this journey and can we benefit from the output.

?

John Bova?is a Transformation, Commercial Excellence and RevOps Leader in Private Equity Firms and Portfolio Companies. John has played many roles in the private capital space over 30 years Including senior executive to fast growing middle market companies, Independent Sponsor, PE and Family Office Advisor and Consulting Practice Leader driving value creation through technology and transformation - ?https://www.dhirubhai.net/in/johnabova/?

?

?