1. Talent management
Talent management has rocketed up the industry’s agenda since the outset of the covid-19 pandemic.
According to a survey of private funds CFOs conducted by affiliate title Private Equity International in June 2021, talent management was the single most important issue facing portfolio companies in achieving a successful investment cycle in this altered environment.
Spurred on by the so-called ‘Great Resignation,’ where junior talent exited their businesses in droves, many across the market questioned what levers they needed to pull to keep their workforce engaged.
Panelists at PEI’s CFOs and COOs forum in August noted that the pandemic and remote working had allowed them to broaden the search for talent away from the major financial centers.
Productivity was also high on the agenda, with one panelist saying they thought levels would dip when people return to the office. “I haven’t worked this hard in 25 years of my career,” they said. “There’s no way we could have gotten through the last 15 months with the added commute.”
Panelists added, however, that flexibility was vital for achieving the best results and for maintaining the best talent.Other panelists shared their concerns about the remote working environment’s impact on creating an atmosphere that allows for informal mentoring at private equity firms, saying that unplanned encounters were important for maintaining a strong sense of participation and the development of junior staff.
2. Data lakes
The jargon can be confusing. There are data lakes, warehouses, pools and even swamps.
A data lake, like a warehouse, describes a repository of large volumes of data ready to be extracted and interrogated to answer business critical questions. A dedicated analytics function “typically doesn’t exist when we invest,” says David Kirby, who leads the growth acceleration team at Livingbridge.
Consumer-facing e-commerce businesses are typically ahead on collating data, while B2B service businesses lag, says Kirby. Data may be dispersed across different software and systems, including CRM, finance and HR functions, and is often not aggregated. SME businesses can also miss out on realizing the wealth of data at their disposal because they have not had the “time, capability or imperative to understand what’s going on under the hood from a data perspective,” he says.
When investing in a business, helping them build this capability is “foundational to everything else that follows,” Kirby says. “This means getting the purest form of data and then starting to surface it to make it available across a business. Then it can start answering questions that management never thought it would be possible to answer.”
Collecting data also has direct commercial applications. Charterhouse Capital Partners assisted exhibition operator Comexposium with putting in place a data lake to upgrade the business’s digital marketing, says Charterhouse partner Alain Vourch. This gave it “the ability to generate more qualified leads for exhibitors and better match visitors’ expectations,” he says, which was key to the business that the GP sold.
Data security has become a central concern of CTOs and COOs as private funds groups continue to embrace the cloud and ingest (and share) larger volumes of data. This requires fund administrators to redouble their efforts to ensure good cyber-hygiene is upheld at all times.
One of the reasons for COOs prioritizing data security is the increasing sophistication of cyberattacks. Raj Gidvani, chief technology officer at Gen II, says: “We’ve seen examples where people have registered domain names of companies we do business with, or cases where they’ve pretended to represent our own internal human resources to get access to information. To thwart these attacks, we’ve implemented some new technology tools to detect and respond proactively to prevent intrusions.”
He adds that one of the key tenets of information security is to always remain vigilant and look for suspicious end-point activities.
“We were always forward thinking to have embraced cloud-based technologies for server infrastructure to help with this,” Gidvani says. “We have also moved our staff end-user desktops into the cloud. This means all the data (and data systems) remain in the cloud, where we can manage them centrally and apply end-point security tools.
“Our [chief information security officer] continues to stay informed on information security and uphold best practices. We are also partnering with a remote 24/7 real-time security network operator to monitor for any suspicious activity.”
4. LP Portals
The private funds industry has known for several years that a more efficient and effective means of LP communication is needed, but it was not until the onset of the covid-19 pandemic that general partners started building dedicated portals in earnest.
At the Private Funds CFO-hosted CFOs & COOs Forum in August 2021, panelists said the driving force behind portal adoption is the ability they can unlock to quickly turn around requests for information. One panelist said his firm aims to respond to LP requests within 24 hours whenever possible.
Another speaker credited portalization with the establishment of an investor reporting group within their firm, comprising representatives of the deal, IT and client services teams, to plan the steps and processes to deliver fulsome information to clients quickly.
Perhaps one of the driving forces behind portal adoption is that portals provide a safe space to host annual meetings and committee Zoom meetings. Two funds at the forum reported that by pre-recording and posting their annual meetings, they saw an increase in LP attendance over the pre-pandemic default of an in-person event. Those funds said they are looking for ways to combine both on-site and off-site elements into their annual meeting structure going forward to capitalize on this success. “The human interaction of breaking bread, we all miss, but the efficiency of what we were able to do with pre-recorded and virtual live events” is now a fixture, said a CFO.
5. Diversity, equity and inclusion
As any change-management aficionado will tell you, the ability to define a problem is critical to solving it. In order to truly embrace diversity, equity and inclusion, an investment firm must first decide what a diverse and inclusive workplace means to them and – crucially – why it’s important.
As Wol Kolade, managing partner of Livingbridge and co-founder of the 10,000 Black Interns initiative, says: “If you don’t understand why this matters, you may as well not bother. To make any kind of difference, D&I has to be genuinely and deeply entrenched in your organization and in your culture.”
For Esther Peiner, co-head of infrastructure in Europe at Partners Group, the answer to why diversity, equity and inclusion is important is simple. “The assets we invest in have an essential and lasting role to play in society. If our investment decisions are taken by a small subset of that society, we run the risk of blind spots. Having diverse voices around the table is vital to ensuring our infrastructure remains profitable and valuable.”
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Lauren Harris, director at Northleaf, meanwhile, describes the pursuit of DE&I as a moral and economic priority, adding that she sees it as a competitive advantage.
Indeed, there is growing understanding that people are a firm’s greatest asset, and that attracting and retaining a diverse workforce leads to better performance. “We are deeply committed to ensuring we are a firm that develops and retains the best possible talent,” says Pete Stavros, co-head of Americas private equity at KKR and co-chair of the firm’s inclusion and diversity council. “Therefore, we have made becoming more diverse and inclusive a strategic priority as we believe that different perspectives will enhance performance.”
Of course, diversity is a sweeping term that covers a vast array of differences. Firms must define and prioritize what forms of diversity their program will address. Gender has typically been the starting place. “With gender you were in effect promoting your sister, cousin or aunt and that is relatively easy for people to embrace and that helped build momentum behind the issue,” says Kolade. “Ethnicity was harder for people, but by then, the train had already left the station.”
Harder still are less visible and measurable forms of diversity, including sexual orientation, socioeconomic and educational background, disability and neurodiversity. “It is also important not to inadvertently leave out the majority – the cisgendered, straight, white male – when you talk about diversity,” says Johnathan Medina, head of inclusion and diversity at Apax Partners. “Diversity is all the visible and less visible things that make us unique.”
Firms must also consider how far-reaching their diversity and inclusion ambitions are. Some prioritize getting their own house in order before extending the mandate to underlying assets; others believe the greatest impact they can have involves broader promulgation within the portfolio. Nuveen, meanwhile, has extended this to its wider supply chain with an international Supplier Diversity program to support the growth of women and diverse-owned businesses.