Private markets fund managers have, generally, taken a ‘best of breed’ approach to implementing technology solutions, whether that be front, middle, or back office. There are obvious benefits to doing so, like the need to train only specific staff that would use a particular system and minimising the perceived risk around too many people having access to systems they don’t need to do their job.
There are, of course, downsides to this approach. Getting different systems - in many cases built on different code - to talk to each other can frequently be arduous, and sometimes, border on the impossible. Dedicated resources need to be employed, often at significant cost, to enable a smooth functioning of the GP and their fund’s technology strategy.
Private equity, private credit and real estate fund managers are increasingly turning towards end-to-end solutions to solve for these challenges. These solutions not only reduce costs, but they also reduce the increased time spent on managing multiple vendor relationships. The main benefit, however, refers to the issue around what – or, rather, which system – is the ‘Single Source of Truth’. Having a single source of truth is an essential part – indeed, a foundational one – of a high performing data strategy for private markets investment managers. End to end solutions ensure that there is one trusted data source, helping to eliminate data duplication and data misinterpretation. And the benefits of an irrefutable single source of truth for a fund manager has ramifications for the entire business, and in particular, three critical functions; those of investor relations, compliance, and portfolio management.
Institutional investors with private markets fund allocations are increasingly requiring their GPs to provide more transparency with regards to certain exposures, like ESG or, topically, political or country. End to end technology makes it easier for investment managers to understand and measure their exposures across their main funds, sub-funds, and SPVs as their data is piped in at source, rolling up through the system, enabling more precise monitoring of these exposures across the firm. GPs are now able to produce ESG-related reports for their LPs at the touch of a button, with a higher degree of accuracy, due to there being a single, irrefutable data source.
End to end technology is not only helping GPs with measuring ESG criteria. As more institutional end investors look to private markets for better returns, and existing LPs look to diversify their private credit, private equity and venture capital allocations, GPs using this technology are gaining a competitive edge in the fundraising process by being able to be more responsive to investor questions, with more transparency. Industry, country, currency, and geopolitical risk exposures, as well as investment strategy data highlighting where an investment manager can differentiate, are all made quicker, easier and more accurate by a single front to back office technology solution.
It’s not only the investor relations function where GPs implementing an end-to-end solution are seeing benefits. Compliance requirements forced on private markets fund managers grows ever more involved and complex, with error risk caused by multiple systems forcing GPs to throw more resources at solving the compliance puzzle, costing time and money, and causing headaches. By implementing a technology solution that integrates access, security and audit controls across the entire firm, private markets GPs are able to work more effectively with their outside counsel and fund administrators to ensure that compliance doesn’t evolve into the headache that it can so easily become. Additionally, this ties into the investor relations function, reassuring current and potential LPs, thus providing a competitive edge.
Originating deals is an evergreen task for a private markets fund manager; potential new portfolio companies, bolt-on acquisitions, and an eye on the first wave of investments for their next fund all keep them busy. Dedicated technology has long existed to help them manage and analyse this process but connecting that data to other critical functions can be cumbersome. For a GP, being able to track a portfolio company – from origination through to due diligence through to investment – whilst comparing ESG and SFDR metrics, incorporating GAAP and IFRS standards, not only makes administration much easier, but more critically, allows for quicker, more in-depth analysis of the GP’s KPIs that are so critical to the success of their investment process.
Whilst end to end solutions improve these three most critical of functions, no two private markets fund managers are truly the same, and the needs of one do not always perfectly mirror the needs of the others. Technology that is a genuine ally to an investment manager is ‘no-code’, providing a flexible solution that enables a client to add their own data points without the need for costly and lengthy development work, ensuring the GP can produce reports that benefit not only by coming from a single source of truth but by being focused and aligned with the needs of the specific GP. End to end solutions that can provide a look-through of the firm’s entire range of exposures, whether this be country, region, currency, industry, or asset, from funds through to SPVs and allocations to other funds, enable private markets GPs to better understand risk – and opportunity – across the entire organisation.
The entire private equity, private credit, real estate, or venture capital firm benefits from the single view of the organisation this type of technology provides. In a world where the choice available to institutional investors when it comes to their private markets allocations has been never greater, GPs that implement an end-to-end technology solution are creating competitive advantages that persist.
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