Traditionally, private equity firms have not been proactive investors in information technology and infrastructure, but given the sheer pace at which IT innovation is taking place across the globe, the industry cannot afford to stand still. Here I will highlight some of the current technology trends relevant to the private equity industry; technology that not only solves specific operational business needs but also adds real value to the firm.
Enterprise search technology
Enterprise search technology refers to the capability of making content from multiple enterprise-type sources (like databases, intranets, file systems, software applications, document management systems and emails) easily searchable by users.
Enterprise search systems also have granular access controls in order to enforce security with respect to who can access particular content. An enterprise search platform improves accessibility to information regardless of an employee’s location. In the context of private equity, a typical scenario is where an investment manager wants to access all information related to hotels that his firm has dealt with in the past. The manager may need to search CRM for relevant internal experts and external contacts, the deal-flow system for deals considered in the past, the portfolio management system for any investments in hotels, the knowledge management repository for any researched data, and so on. The enterprise search platform can make this an enormously simple task.
It is worth mentioning that Gartner, a leading global information technology research and advisory company, has in recent years been using the term ‘Information access technology’ to include and expand on what they previously called enterprise search technology. This aptly underlines the value this technology can bring to the private equity firm.
Business intelligence and analytics
Business intelligence (BI) is a set of applications and processes that transform business raw data into meaningful and useful information. BI is not about just having the data but more importantly about having the capability to collate and analyze data.
For a private equity firm it is critical to be able to draw comparisons and conduct analysis on desirable parameters when looking at the deal pipeline, portfolio companies or fund data. It is equally important to be able to analyze and have a forward-looking view of investment performance by tweaking certain parameters that can change over time (for example, the portfolio’s financial data and currency fluctuations). This is the power that a BI and analytics technology platform can provide to investment analysts as it enables them to effectively use their time in actual data analysis rather than pulling, collating and generating graphs every time.
Virtual data rooms
A virtual data room (VDR) is a technology solution that allows online document sharing; a repository of information used for both storing and distributing documents only to the intended audience.
A VDR solution is not only cost effective but also fast, efficient and secure. In the private equity context there are a lot of time intensive and secure document exchange needs at various phases whether it is communications with investors during fundraising or with advisers and regulators during the ‘deal pursue and investment stages’. A VDR solution can help to manage such communications by providing features like bulk uploads, drag and drop files, search facilities and branded websites.
As technology develops and becomes more sophisticated so too does the potential for security threats and vulnerabilities. For an industry like private equity, data leakage continues to present significant risks in terms of both cost and reputation. Private equity firms collaborate with many other firms when closing deals, such as investment banks, legal firms and target investee companies. This means that an increasing amount of information is being shared and processed between different organizations
Private equity firms must keep their transaction information confidential, since there have been occasions when deals have been lost because of leaked information after firms have completed exhaustive due diligence on the acquisition of a target company. For that reason, security concerns have risen rapidly to the top of the list for private equity management.
IT security is an interesting challenge for firms to address since there is no one single security product that can be applied as a panacea. There are multiple factors that need to be considered: network security; information security; and systems security, for example. First, private equity firms should perform vulnerability assessments and penetration testing to identify existing weaknesses and potential risks. The next step should be to address external security threats by using advanced security technologies like intrusion prevention and anomaly detection. Third, firms should target internal user identity and access rights throughout their systems to ensure only authorized users can access protected information. Some firms may also need to adopt a data encryption strategy to help keep private information confidential and meet compliance mandates. Finally, it is important to implement continuous risk and threat monitoring solutions, which can provide forensic reports attesting to the fact that the systems were used in accordance with the stated security policies of the firm.
Mobiles and tablets
Mobiles and tablets will soon pass desktops and laptops as the most common tools used to access information. BlackBerry continues to dominate the enterprise market largely because it remains the most secure device available. The adoption of other smart phones and tablets is on the rise in the private equity industry.
The use of such devices in a private equity firm can be broadly classified into three categories: secure access to email; secure access to documents; and secure access to enterprise applications/data either through VPN technology or through a bespoke enterprise application.
Ensuring security, developing centralized remote management and putting in place technical support models are some of the key challenges firms face when adopting mobile and tablet devices. This is because tablets and smart phones are essentially consumer-grade products that emphasize user experience over enterprise-class security, privacy, maintainability and manageability. The trend is ‘Bring Your Own Device (BYOD)’ where employees use their own mobile devices. It is therefore important that a private equity firm’s IT is able to support such apps and services used to run the business on employees’ personal devices.
In terms of usage trends, content consumption is increasing on smart phones and tablets while content creation continues to be on desktops/laptops. For the time being then desktops and laptops are here to stay and must coexist with mobiles/tablets until the mobile applications improve and faster processing allows content creation to be made easier on such devices.
Simply put, cloud computing is a means of carrying out a particular business function using the internet. It has gained popularity on software services platforms, which can be configured to suit a particular firm, and infrastructure platforms such as online storage and servers.
Cloud computing is taking all industry sectors by storm, therefore, private equity firms cannot ignore it, particularly small and mid-size firms that can benefit from the economies of scale that cloud computing provides.
There are a variety of cloud-based applications available to the private equity industry designed for business functions such as accounting, LP reporting and Customer Relationship Management (CRM).
Some of the main benefits to be gained from using cloud-based applications include:
– Real-time accessibility from anywhere in the world.
– Reduced upfront capital expenditure.
– Faster implementation of systems.
– Paying only for what is used.
– High scalability.
– Higher uptime for the applications.
With cloud computing comes two main concerns that cannot be ignored: data security and integration needs with other in-house systems. These products should be evaluated and compared with other available applications and a suitable choice should be made accordingly.
In conclusion, there is every possibility that by the time this book is published there may be a few additions to the list of technology trends listed in this chapter, such is the pace of technology evolution these days. The objective here is not to present a comprehensive list but to inform private equity firms about what is potentially available to them so they are better prepared to keep an eye on and adopt up-and-coming technology trends. And it is not only the IT executives but also business people in private equity firms who will increasingly need to be more equipped to keep up with the pace of technology innovation.
Ankur Agarwal has worked in the technology sector for nearly 14 years and is currently an independent consultant. He focuses on offering consultancy to private equity firms on IT architecture and design, technology evaluation, technology start-ups and building high scalable solutions.