How firms can better manage data for strategic advantage
Rapid growth and change in private equity investing have heightened the importance of in-depth data and analytics. To compete, private equity fund managers need high-quality technology solutions that sharpen their insight and streamline their workflows across the full fund lifecycle.
Private equity firms are uniquely positioned to leverage data. Besides having considerable capital resources and financial sophistication, their business model assumes the ability to make profitable decisions based on sophisticated insights. The need to manage, aggregate and protect PE data, including portfolio company data, is significant. The value of monitoring, mining, and even productizing that data is immense, both for the General Partner and the portfolio companies.
But the sector also faces particular challenges when it comes to effective data management. Grant Thornton recently brought together operating partners from leading Private Equity firms to share their thoughts about how best to assess their investor needs, consider the possibilities, and confront the challenges of data in the private equity space.
Private equity is not especially ahead of the curve on software adoption, data analytics or digital transformation. If anything, it lags behind organizations such as consumer banking or retail, which have implemented broad digital transformation initiatives in order to retain commercial relevance. While some private equity firms have adopted portfolio management software systems and have hired data specialists, many continue to rely on Excel and much more needs to be done to gain a commercial edge in a very competitive landscape. This slow adaptation of data best practices is further complicated by private equity portfolio management culture which places a high value on partner autonomy, personal expertise and industry experience. mission.
Appraising the challenges
Objectives vary widely, from obtaining basic EBITDA and revenue information in the formats native to the portfolio companies to building a comprehensive, real-time and easily queried data system which can answer virtually any question.
Promising halfway points include a set of meaningful side-by-side data on key benchmarks across the portfolio, historical data on revenue and EBITDA, dashboards for monitoring key metrics, paginated reports which executives could study on their own schedule, rich data on possible shared costs or services such as procurement, or ad hoc reports on key issues.
Recent developments and proposed regulations have made it increasingly important to track non-financial metrics such as ESG implementation, cybersecurity status, or climate risk.
Software also varies widely, and too many participants still favor Excel. That said, a number of participants have built home-grown systems where Excel is supplemented with Python scripts or PowerBI reporting.
Others have adopted or explored dedicated software options such as Chronograph, Cobalt, eFront, and iLevel. Some are better at data intake and others, at reporting. While custom solutions are always appealing, off-the-shelf software regularly incorporates the newest regulations.
Private equity firms are on the cusp of realizing the power of data to deliver insights that can transform their business—and the businesses of their portfolio companies—but more change needs to happen. Cultures must change, champions must emerge and priorities must be defined. Soon, that change will be powered by rich data.
National Managing Partner, Private Equity Global Co-Head, Transaction Advisory Services
Carlos Ferreira is Grant Thornton’s National Managing Partner of Private Equity.
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