1. Those who don’t automate will fall behind
The trend toward automating processes was already in play for quite some time when the pandemic came along and kicked it into high gear. Reporting demands and calls for increased transparency from LPs are on the rise, and technology is becoming more crucial every day.
Jacolene Otto, head of private equity and real estate at Maitland, says that the entrance of more traditional long-only managers into the private markets and their demand for faster and more efficient reporting mean that those who don’t automate will fall behind.
“That demand to be so fast-paced is definitely driving a lot of automation that, as administrators, we need to look at,” says Otto.
Carmine Remo, managing director and head of alternative operations at tech-driven services provider SEI, says that while the ‘old’ methods of working are still getting the job done in some cases, “I do believe you get more scale and efficiency if you aggregate them with a consistent solution. It also helps mitigate the risk of manual intervention and disparate processes. As we continue to evolve, this could lead to an ability for us to utilize [robotic process automation] for more complex tasks or even potentially help with system integration processes.”
2. Big data is driving the need for enhanced technology…
Even as technology and automation are becoming more common elements of the private markets stack, certain disciplines remain in need of attention. Christa Clark, partner and national leader of mid-market audit, tax and consulting services provider RSM US’s investment funds tax practice, says that one area where the need for enhanced data management systems is very apparent is in the world of tax accounting. “Today’s fund managers are looking for technology platforms to deliver their tax data in real time,” says Clark.
Lauren Demas, principal and leader of RSM’s partnership technology services group, says that today, “when the tax department receives inquiries, the team must spend time and effort manually manipulating decentralized data in preparation for layering in tax analysis. Technology innovation is eliminating this data wrangling we’ve all experienced. Instead of spending hours collating data, tax departments can run reports directly from a system… saving precious time and allowing the team to focus on analytics.”
3. …and it pays to eliminate data silos
David Sarfas, head of private capital at Intertrust, says the adoption of automation has increased in recent years, and that the next logical step will involve moving toward comprehensive automated ecosystems.
“We’re going from closed network type of data solutions to more platform type of environments. We’re looking for transaction efficiency, automation in calculations, automation in identification of issues, and democratization of that data to make things more and more transparent,” Sarfas explains.
And Jennifer Tribush, a senior vice-president and global head of alternatives product at State Street, says that an ecosystem approach is what managers today are looking for. She says it’s important to remember that “clients that are in private markets are generally not just in one subsegment of private markets,” and that a key pain point for managers today is the lack of “a complete accounting view” on a single platform.
“Getting an executive-level view of data from across the enterprise and providing timely investor reporting with a consistent look and feel are really important issues. You need to be able to collect and present data from pre-investment, through the investment lifecycle, all the way to end-accounting and official books and records,” Tribush says.
4. Technology investment is driving growth in growth equity…
Plenty of capital is being targeted at the technology space, but even among diversified funds, tech is a growing portion of the remit.
The fact there are so many different investors targeting the tech space means that LPs may have a harder time distinguishing which deals, and which managers, are the right fit for their risk-adjusted return aspirations.
“Technology is not an industry vertical anymore, it’s a horizontal that cuts across all basic industries,” says Scott Voss, chair of HarbourVest’s primary investment committee. One driver of this trend is that “if you look at performance in private markets you will see tech funds, regardless of where in the company lifecycle they are investing, have dramatically outperformed. That outperformance is causing lots of capital to flow into the space.”
At Campbell Lutyens, partner Sarah Sandstrom, head of the firm’s North American private equity fund placement activities, says: “One challenge for LPs is that the generalists have also been very active in this space. So, you might say you want two out of the 10 funds that you invest in to be tech funds, but then if you look at your generalist funds, they are doing a lot of tech investing, too. The majority of LPs have embraced the digital revolution and are comfortable with that over-exposure, but it’s something investment committees have had to restrict a little bit, to see how comfortable [they] are leaning into that trend.”
All of this money targeting tech is causing a growth equity boom. “The venture and growth market has grown significantly,” says Miguel Luiña, head of venture, growth and technology investments at San Francisco-based Hamilton Lane. “The opportunity set is significantly bigger, with companies staying private longer.”
5. …and CFOs can’t afford to be complacent
Tim Buchner, co-founder of Mercatus and COO of State Street Alpha for Private Markets, says his first piece of advice for private market CFOs is “don’t be complacent.”
“So many CFOs in the industry today are really struggling to make technology a key priority and get clear outcomes that address their largest gaps in the data management process,” Buchner says. “It’s difficult to get that clarity around what data process outcomes are going to make a difference for their company [but] those organizations that are making investments now are really leapfrogging others.”
But, he says, adding technology is “a journey, not a race.” At the heart of that journey, he says, are the people who will be accountable for implementing a data strategy. Because at the end of the day, all the data in the world doesn’t mean a thing without cogent analysis.
“Automation really is the market buzzword these days. But it’s important to remember that you need to focus on automating the right things,” says Buchner.