The past two years have forced most companies to embrace remote working in a short space of time – a transition that was especially challenging for many GPs and LPs given their reliance on manual methods of working. Though plenty of progress has been made on digitization, many companies are still in the beginning stages of adapting.
As the world contends with a fresh Covid-19 wave, we’re likely facing more bouts of remote work in our future. Most private markets firms have either begun or are preparing for the “Great Transformation” – ensuring their operations are WFH-proof and digital-ready.
Here are Quantium’s top four tech predictions for 2022, as companies plan their annual budgets and try to work out technology investment allocations:
1. Robust technology will move from “nice-to-have” to an operational need.
Leadership teams are rapidly realizing that digitization is the way of the future. Most GPs can agree on the point that technology changes the game for all players in the private markets. “Fundamentally, even before the Covid situation, we’ve been quite clear that in the decade of the 2020s, digital is going to be a commodity and a necessity – for everyone,” said Katsuya Baba, Partner and Chief Administrative Officer at Advantage Partners, speaking at the 2021 AVCJ Private Equity & Venture Forum.
Often, firms suffer for too long within the constraints of their own technology, wasting their team’s capabilities on Excel or outdated legacy systems to generate even the most basic outputs. Many GPs aren’t aware that there are modern, user-friendly solutions now available on the market, which can be layered over existing workflows to greatly enhance outputs and insights. For example, there are sophisticated solutions that allow you to configure templates and generate portfolio one-pagers for all investee companies with a single click, making routine quarterly reporting painless.
2. Firms will prioritize software that provides timely, real-time insights rather than stale, static data.
The pandemic has fundamentally changed the GP-LP dynamic. With every industry and region being rocked by ongoing instability and regulatory changes, LPs are demanding more and more ad-hoc updates, and GPs are expected to provide more transparent, accurate and personalized information to their investors.
According to Private Funds CFO’s 2022 CFO Insights Survey, this is a common pain point amongst private markets firms. “Investors themselves are under increasing pressure from their own stakeholders…to provide a greater level of transparency and data and to accommodate more detailed requests,” said Hina Ahmad, Chief Operating Officer at Capital Dynamics. “That, in turn, is putting pressure on the investment management community.”
The pressure on private equity firms, as well as their service providers (e.g fund administrators) to provide exceptional investor-servicing has exponentially increased. The right software partner can ease the burden and create a seamless data-sharing experience between GPs and their LPs. For example, performance dashboards that enable you to “stream” real-time, personalized data to your investors (in a highly controlled manner) as opposed to sending them static PDFs (that are typically out-of-date from the moment they’re exported) will become standard practice – if not in 2022, then certainly in the next 2-3 years.
3. Investor-centric platforms will become the gold standard in GP technology, providing firms with long-term competitive advantages.
The private equity ecosystem is now realizing the business benefits associated with investor-centric systems. Having software built with the LP’s needs in mind bodes well for investors in the long run – these GPs will be equipped to provide better data insights, well-organized data to streamline fundraising cycles, and accurate, current investor updates.
An investor-centric platform is one that helps organize fund and portfolio data in a manner that can be easily consumed and analyzed by LPs, giving them a clear, real-time indication of their position and allowing them to take timely action to maximize their return. LP portals are a classic example of investor-centric solutions, but currently the majority of investor portals don’t actually deliver on the premise – they offer a snapshot of the data at a certain point in time via basic PDFs, rather than streaming live data in real-time for the most current picture in a highly controlled manner.
How well PE and VC firms can service their investors is becoming an increasingly important criterion of the “ideal” fund and portfolio management software, and is an important factor being assessed during operational due diligence checks.
4. As market conditions evolve, fund structure and reporting complexity will increase – and technology partners will have to adapt their solutions in order to facilitate this.
Most well-established systems were developed decades ago, and don’t have the code foundation to support complex fund structures or various layers of reporting requirements through easy configuration, which results in higher customization needs for private equity firms. The more customization that’s required of a system, the more time, costs and firm resources need to be allocated to digitization – a far from ideal scenario. One such example is Sequoia’s permanent shift to evergreen, or an open-ended fund structure, which creates more complexities in LP management, carried interest calculation and investment portfolio analysis. It’s important that service providers and technology partners maintain an agile, innovative approach to solution design, and are ready to evolve along with changing market conditions.
These trends are simply a snapshot of what’s to come – the new era of the private markets has only just begun, and there are undoubtedly more seismic shifts that GPs, investors and partners will need to navigate.
Are you looking for a modern, user-friendly private equity solution for your Investor Relations, Finance and Portfolio teams to enable better management insights? Get in touch today for a consultative discussion on how to solve your firm’s pain points.