This article is sponsored by Diligent Equity.
No fund manager today discounts the value of better data management. There is a general understanding that ably deploying data can help please LPs and improve investment decisions, which translates into better returns and higher fundraising tallies in the future.
The stakes are clear, but devising the right strategy and selecting the right vendor and software for a firm’s needs may be getting harder. Service providers have been flooding the space with all kinds of solutions, including the use of cutting-edge tech like AI, machine learning and robotic processing.
One considerable aspect of this selection challenge is the fact that the industry has few truly standardized practices. Every firm has its own unique structure and needs, and investors with their own unique demands – even if the end goal of better analysis and reporting is universal. The reality is that every manager’s tech stack may be different, according to their priorities and legacy systems.
Having said that, there are some principles that managers can adopt to give themselves the best chance of finding the right solution for their firm. With that in mind, we sat down with Jeremy Barlow, head of commercial for private equity software provider Diligent Equity, to discuss these guidelines.
Barlow stresses the need for managers to focus on outcomes, rather than any given tech; to make sure that the multiple solutions can be integrated into the business; and, most importantly, to think of technology as an area for constant improvement, rather than something that gets set up and forgotten about until it starts to falter.
You have a front row seat to the challenges that fund managers face as they try to choose the best solutions for their situation. What are some of their most pressing issues at the moment?
There are two forces in play here and they aren’t new. LPs are demanding greater transparency, which isn’t just about more data, but about making more data digestible.
That thousand-page PDF isn’t going to cut it. Rather, the data needs to be reported in a way that can be understood and, importantly, analyzed by the investors as well. The other force at play is that firms are increasing their investment activity, and that means more and more data to gather, upload, review and report. There’s more data, plus a greater need to be able to manage it internally and externally.
On top of that, PE firms are wrestling with legacy systems and solutions that can’t talk with one another, so there’s an enormous effort involved with manually moving information between them. This takes time and increases the risk of mistakes that come with any manual process.
Is there a silver bullet that will solve all these problems?
Absolutely not. The perfect solution for all of this doesn’t exist yet. It may arrive at some point in the distant future but I’m a true believer that an integrated, API-forward [application platform interface] approach is best, since there is never going to be a single vendor that does everything that a PE firm needs.
Every firm will have to adopt multiple solutions to complete all their necessary tasks. These solutions need to be able to speak with one another, without the necessity of technical expertise, because it is not a solution if the tech team is the only one who understands how to use it. One of our guiding principles here at Diligent is that our software solutions are all API-forward and user-friendly.
Why do you think Salesforce won over the CRM [customer relationship management] market? They made integrations easy, so that you can pass information with little friction through sales, marketing and finance teams. The same thing will happen in PE. In my experience, it has already started to happen. One of the reasons behind this is that the move to cloud-based technologies make it easier for various apps to connect, share data and get upgraded on a regular basis.
How should fund managers be reviewing their current systems and solutions to decide where they can, and should, upgrade?
They should start with their pain points. Where are they spending too much time? What’s the most cumbersome part of the data management process? We’re big believers in starting the process by defining the business outcomes that a client wants. What is the outcome they want and what are the data points they need to get them there? If that’s unclear, it’s worth doing the work to discern the actual difficulties in data management and the primary outcomes they want in the end.
Of course, the most common time to do this kind of deep strategic dive is right after a fund closes, but any fund manager that finds they’re wasting too much time on a certain step of the data management process could look into a solution that addresses that. However, this outcome-first approach also demands greater collaboration between the tech team and the relevant non-tech personnel of a firm.
Let’s say that someone needs to automate a waterfall calculation. That means the finance team will clearly need to dictate the parameters of that. The same goes for that new investor portal, which should tap the expertise of the investor relations team as well. This collaboration doesn’t mean that the CFO needs to review code, only that the business perspectives drive the tech initiatives and not vice versa. The success of any data management project is determined by the consumer of that data and, for our clients, that means the internal teams and the investors. It’s never the software. It’s always about what the software can accomplish.
What are some blind spots fund managers have that may jeopardize that success?
The least successful implementations tend to be when the manager takes a “set it and forget it” approach to their technology. If a solution is worth the trouble, it will change the daily flow of work for staff, so the staff need to buy into the upgrade by understanding how it will make their lives easier or their work more rewarding. That new solution will need to be explained by its benefits and then the staff need to be trained well on the new process to limit the frustration that comes with any change.
Beyond that, in this “cloud era,” fund managers need to commit themselves to continual improvement. In lieu of that mythical silver bullet that will do everything a manager wants to do at the touch of the button, constantly upgrading the mix of apps can make that dream irrelevant. That being said, this requires managers to stay vigilant that their apps are well-integrated to foster an easy flow of data, all in the service of what the fund manager and their investors actually need.