Private Equity Q2 2022

Tim Toska, Global Head of Private Equity, Alter Domus

Efficient and accurate data gathering and communication are must-haves in private equity. The next step is harnessing technology tools to make better investment decisions

Why should GPs invest more in their technology platforms?
We have seen a shift in the ultimate benefit of technology adoption. While it was once seen as an investment to improve efficiency, over the last two years it has instead become a catalyst for really meaningful discussions about technology and data, and the ways in which this technology adoption can help generate insights for better decision-making. This means new possibilities now crop up, such as how can technology assist in sourcing the next deal? Or how can it help determine when the market dynamics are appropriate for recapping a deal or pursuing exit possibilities?

What data challenges are GPs and LPs facing, and what are the solutions?
First and foremost, to make proper decisions, you have to trust the data. It may seem obvious, but when aggregating data from various data sources, there needs to be a built-in mechanism of reconciliation and integrity checking to ensure the single source of truth. Due to the disparate sources of data, the main challenge for GPs and LPs is often knowing where that single source came from. We have found that the global pandemic put more pressure on firms to start their data journey as reporting demands increased and staff began working from home and, in some cases, across geographies.

What is the first step toward harnessing the power of data?
People tend to understand that technology will be a benefit, but they may not fully understand how to get there. The key is assessing the need and ensuring organizational commitment to the transformational journey. It may appear easy to see the finish line, especially with the adoption of technologies such as application programming interfaces (APIs), machine learning, and artificial intelligence (AI), but how do we get there? It all begins with the data. These technologies are great for taking in raw data from across various sources within an organization. On paper, it’s a remedial, ‘boring’ first step, but it's a critical one.

What’s a realistic implementation timeframe?
Of course, the timeframe will always depend on the depth and breadth of the specific implementation. This process is a journey for an organization, so it is important to have a plan and to begin by implementing short-term solutions that will allow for long-term development. A firm like Alter Domus can assist with data management, workflows, and processes due to the nature of our involvement. This stems from our service offering. The process begins at six months and should be pushed within 12-18 months although for a high-growth firm it may take longer. Either way, it’s important for new managers to have the right focus on data technology from day one. Ultimately, there is no end date to technology implementation; it’s a critical area that requires continuous maintenance and development.

What lessons can PE managers learn from other areas?
The main ones are the power of data, getting it from different places, and aggregating information to perform meaningful analyses. Our IGRES platform in real estate is a great example of this. We created a solution that integrates all accounting and reporting – from fund administration to local property companies and real estate debt companies – into a reporting environment that provides a single source of truth. Private equity is also getting more complicated, with funds opening in multiple geographies right off the bat, and the existence of grey areas between and within asset classes. And it’s happening quicker than ever. Now, the goal for most PE managers is to have a single digitized version of the truth on one customizable dashboard, and to use that to make better, more informed decisions.