The best customer relationship management software for private equity firms is one that works for everyone – from the investor relations team, to the information technology department, to the deal origination group. It has to work across all of a firm’s offices, from the US to Europe to Asia.
However, it takes some firms several attempts to get their CRM system right. The Riverside Company, for example, has tried four different systems in the past 12 years since partner Robert Landis joined the firm.
In 2002, Riverside used the ACT! system; sources say this is more geared toward the marketing team, and excelled among very small user groups. Riverside then tried two other systems before adopting Europe-based Netage Solutions’ Dynamo Private Equity Edition, formerly DealDynamo, about six years ago.
“It’s more complex than some marketing systems and more cumbersome, but it’s one system that works for everyone,” says Landis.
Dynamo has different tools for deal management, portfolio management, investor relations, fundraising and accounting. The system is used throughout all of Riverside’s 21 global offices.
According to Landis, one of Dynamo’s unique features is its ability to facilitate capital calls and distributions for limited partners and for Riverside employees who have committed to the firm’s funds. Dynamo thus provides cost savings by combining both the IR and marketing CRM systems and maintenance in one programme.
Majority rules
The majority of private equity firms employ CRM software. In a 2011 Preqin survey of 63 buyout firms, 57 percent of firms indicated using some type of CRM system. Of the firms that didn’t, 52 percent planned to employ such a program in the future.
The most common uses of CRM systems are to leverage interaction and relationships and to track deal flow. They allow private equity firms to match the size of their funds to opportunities, conduct sector research, build teams of specialists, and conduct due diligence, according to an April 2012 presentation by Swimfish, a CRM software that reportedly integrated with Microsoft last year.
However, different firms may see the benefits very differently. Among the managers surveyed, 44 percent said CRM usage was ‘important’ or ‘very important’ for deal flow, while about 40 percent stated it was ‘not very important’ or ‘not at all important’ for deal flow.
About 85 percent of firms that use CRM see some level of benefit in the system, according to the survey. But the software remains cost-inefficient for some general partners, and certainly some LPs.
Finding the resources
The State of New Jersey Division of Investments does not have a CRM system, says investment director Christopher McDonough.
“It’s something that we have discussed internally, but it would take a significant effort to procure and implement a system and we don’t have the resources to dedicate to that type of project. I’d be surprised if a lot of public funds had CRM systems.”
The New Mexico Educational Retirement Board doesn’t have a system either. But the pension’s deputy chief investment officer Steve Neel says that implementing a system would be “a huge value-add”.
“Private equity is about relationships and being able to keep records of ‘soft-side’ due diligence is important,” says Neel.
LPs often use online portals so fund managers can securely send them documents and other data.
“We’re on the other side of Intralinks, which is pretty commonly used among private equity and real estate funds, says McDonough. Neel agrees, adding that about 70 percent of the pension’s GPs use the system.
Intralinks is an example of a portal used to facilitate communications with investors, including distributing capital call notices, tax information, regulatory disclosures, annual audits and other investor reporting, according to David Reynolds, chief financial officer and chief compliance officer at Detroit-based mid-market firm Huron Capital Partners.
“We use it to help streamline and simplify communications with our investors. The information is always out there and available, and it eliminates issues with version control and searching through emails.”
However, Huron uses Salesforce.com as its CRM, and keeps the two systems separate. Salesforce is one of the largest and most widely-used CRMs among GPs.
“Everyone has access to Salesforce; Intralinks is only accessed by the finance and IR groups and investors in the funds,” says Reynolds.
Intralinks is of course only one of several software packages aimed at this particular market, all of which have different strengths and weaknesses (for example, one of its competitors, Merrill DataSite, is more focused on investor communications and transaction data, according to Reynolds).
Becoming tech-savvy
Some LPs that have been on the receiving end of these systems have inquired about systems of their own. For instance, Navatar, a more CRM-focused system, launched Navatar Investor last year for private equity LPs.
“GPs dragged LPs into the system,” says Navatar founder Alok Misra. “LPs approached us asking how to manage the information they receive from the system.”
Misra says the majority of Navatar Investor users are larger US-based LPs. But he expects that to change once Navatar markets the system to smaller LPs.
Misra co-founded cloud software company Navatar in 2004 and launched Navatar Private Equity in 2008. Gaining traction among GPs was initially a slow process, he says, but the system now has close to 300 private equity users.
“We didn’t start with the intent of selling our software to the largest players out there. But the best funds are the funds that are up to date with technology, because they quickly realize they can be more efficient at a low price,” says Misra. “The system connects the dots for GPs.”
That said, educating GPs wasn’t that simple, according to Misra.
“Private equity firms historically haven’t been very tech savvy; they relied more on handshakes and relationships. Some firms are scared of technology. But from an efficiency perspective, it’s a competitive business. GPs are competing for investors or for investments, and they need to get in front of the right opportunity.”
Navatar appeals to both mid-market firms and large buyout funds. Chicago-based High Street Capital employed the CRM in 2010, while Austin-based Blue Sage Capital took the system on last year. Some of Navatar’s larger users include Cerberus Capital Management, CCMP Capital and Lone Star Investment Advisors. The system is based in New York and has a product team in India, although it plans to open in Europe soon because a lot of European private equity firms use it and want local support.
Navatar also plans to expand its mobile capabilities, because more users are keen to access the system on the move. “Between 2012 and 2014, mobile adoption has changed,” says Misra. In general, more people use it, although fewer private equity users.
CRM systems are widely used across private equity firms and the majority of them consider the software to be valuable to their business, as the need to become more tech-savvy increases. And while relatively few LPs currently have the resources and capital to employ a system, more are becoming interested – especially in systems that have software specifically for investors. But each organization will have its own requirements; this is never likely to be an area that suits a ‘one size fits all’ approach.
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