Global research undertaken by strategic advisory and analyst firm, TABB Group, and SunGard finds 60% of private equity firms surveyed are struggling with document management and with disseminating data into market intelligence. The research surveyed 119 senior private equity executives across the U.S., Europe and Asia. Nearly a third of the responding firms had Assets under Management (AuM) of over $5 billion, and covered a wide range of strategies, including Buy Outs (24%), Venture Capital (20%) and Fund of Funds (17%).
The following are the challenges identified as standing in the way for private equity firms to transform their data management into investment insight:
Operational inefficiency: When surveyed as to what prevents them from managing their business effectively, the top responses from fund managers or General Partners (GPs) were: the time it takes to get a complete view of portfolios (57%); a lack of front-to-back system integration (50%); and a lack of frequent and timely reporting (50%). The survey found that a majority of firms (67%) acknowledged that an investment management platform is either “very important” or “extremely important” to achieving operational efficiency.
The need for enhanced reporting: The survey found that only 23% of participants currently provide access to interactive investor reporting. However, 70% said it is important to do so, and one-third of the firms said producing on-demand performance reports is challenging. The research also found that the private equity sector faces increased levels of regulation, compounding the burden on data management. Nearly all of the survey participants are currently challenged by regulatory issues, with 39% finding it “very” or “somewhat” challenging to deal with in present market conditions. To adapt to their increasingly regulated environment, firms need the ability to aggregate and report the right data.
The need for improved investment performance: Regardless of firm type, access to timely and accurate information on the portfolio was seen as critical to understanding exposures and risks, as well as measuring performance. The importance of making technology a strategic priority stood out, with more than one in four private equity firms estimating that meeting technology objectives would result in considerable improvement or great improvement on the quality of investment decision making; 42% of those surveyed would expect to see some improvement in this area.
Adam Sussman, partner and director of research, TABB Group, said, “Prioritizing investments in information systems is no longer seen as a ‘nice to have,’ but is an absolute requirement to help PE firms effectively compete in the increasingly democratized world of private equity. As the asset class continues to become mainstream, technology and information systems are therefore essential. Whether deploying on premises or leveraging the systems provided by a third-party administrator, the investments in technology will help lead to increased levels of operational efficiencies, enabling PE firms to quickly adapt and respond to the reporting challenges imposed by investors and regulators.”
Lauren Iaslovits, chief operating officer of SunGard’s Investran business unit, said, “The study confirms that private equity firms recognize the value of increased transparency and more effective data management. Increasing stakeholder demands to be kept informed mean that private equity firms need a ready ability to transform data into useful, digestible, reportable information that can be utilized, as well as help to improve the quality of their decision-making. The challenge that many private equity firms still must overcome though is that operational inefficiencies are hampering them from delivering the intelligence they need to support internal stakeholder reporting – and, even more critically, their investment decisions.”