Getting up to speed

Despite gains that have been made in terms of front and back office automation, surveys indicate that the methods used to gather and disseminate crucial portfolio company information—including ratios, valuations and related data—still have room for improvement. As investors and regulators seek more substantive and transparent performance data, addressing these issues has become compulsory for private equity firms wishing to stay on track. This calls for a comprehensive front-to-back installation, covering reporting, monitoring and accounting functionality.

MANUAL LABOUR

Generally speaking, Excel spreadsheets continue to be the primary method of distribution for private equity portfolio company reports (which are typically generated on a monthly basis). Received in manual form, firms must re-input data, calculate valuations and ratios while subsequently drafting summary reports. 

Lauren Iaslovits

If the data has been distributed using a paper report, investors must then disassemble all of the requisite information in order to understand what has occurred from quarter to quarter, then subsequently log the data onto a multitude of additional information systems. 

In short, relying on multiple solutions for the completion of numerous tasks requires constant reconciliation of data, resulting in process inefficiencies and ultimately driving up costs. In order to achieve greater insight into exposures and performance attributes, then, managers require reporting mechanisms that can offer a one stop snapshot into the inner workings of hundreds of different companies, including ongoing portfolio fluctuations. 

UPGRADE FROM EXCEL

Technology can help private-equity managers swiftly respond to these ongoing challenges. By centralising these processes using a complete, integrated front to back office solution, GPs have the means to address and systematically eliminate redundancies. 

Replacing Excel spreadsheet usage with a multi-directional hub for the purpose of generating portfolio company performance data is an integral part of this streamlining initiative. Rather than booking entries across a wide range of entities, a centralised hub allows all participants to access information through a single entry point. Using an intuitive administration console, for instance, portfolio companies have the ability to manage content and generate performance data on demand and in a timely manner; LPs can easily ascertain valuation data for all fund, co-investments, and direct investments. Secure, browser-based portals ensure fast and reliable communications covering all the different constituencies, allowing customised performance reports to be viewed on demand.

ENHANCED TRANSPARENCY

With the regulatory winds blowing in their favour, today’s LPs are requesting that funds provide more comprehensive information into portfolio company positions, valuations, exposures, and other pertinent detail. These investors will likely continue to push for greater transparency and more information from their managers, in part because LPs themselves must meet higher and more stringent reporting requirements. 

At the same time, the increased cost of heightened due diligence and reporting can be daunting to many in the private equity business. In the face of mounting regulatory pressure, copious amounts of capital will be required. Audit expenses are sure to rise as funds spend more time and capital bolstering existing valuation strategies. Errors in fair value estimations could lead to restated financial reports, eroding client confidence and driving up operational costs further still. With capital raisings still historically flat and fees continuing to contract as well, PE firms are finding it necessary to trim the fat by adopting a much smaller—and more efficient—operational model. 

Lauren Iaslovits is the chief operating officer of SunGard Investran, a provider of software and IT services to private equity firms.