CONCLUSION
Private markets have a reputation for being conservative. Yet our study confirms that most firms are eagerly embracing the opportunities offered by data and technology. Indeed, nearly two-thirds of respondents are prioritising investments in advanced technologies such as machine learning and/or artificial intelligence.
CONCLUSION
Private markets have a reputation for being conservative. Yet our study confirms that most firms are eagerly embracing the opportunities offered by data and technology. Indeed, nearly two-thirds of respondents are prioritising investments in advanced technologies such as machine learning and/or artificial intelligence.
Stumbling blocks remain, particularly when it comes to managing variable data quality and extending the use of data tools into new areas, such as deal sourcing. What steps can firms consider as they look to acquire new data-driven capabilities?
Data literacy is a game changer
The managing partner of a UK-based firm in our survey makes this point clear—“We need to make sure that teams can read and connect with data to use it in the most successful manner.” Getting buy-in for new technology within an organisation can be a real struggle. Data literacy can help and strategies such as providing easy data exploration tools can help to drive adoption.
Use data to drive value
Collecting data about portfolio companies during the holding period yields valuable insights, but this is just the start. The real value comes from actively using data insights to bring about change. “The most important thing is that when you get data, you absolutely have to analyse it and provide outputs for your portfolio companies. You then need to help them take actions to improve,” says Caroline Löfgren, chief sustainability officer at private equity firm Hg. “Otherwise, it’s just a data-gathering exercise.”
Close the strategy gap
Most firms in this survey do not yet have an established data strategy, despite already making extensive use of technology. Those that do have a strategy are clear about the benefits. These include faster due diligence, more accurate portfolio reviews and valuations, improved collaboration, better target evaluation and enhanced returns.
Recognise that data has limits
Data quality remains a blocker for many, and our study shows that firms are prioritising this area as they plan their technology investments. Rather than trying to improve data quality, there are strong arguments for developing smarter models instead. “We accept that data quality is often rubbish and that’s how life is,” says Christopher Conradi, chief digital officer of FSN Capital, which successfully uses big data tools to extract insights. “But if you take this into account when you build your models, that’s fine.”
“The most important thing is that when you get data, you absolutely have to analyse it and provide outputs for your portfolio companies. You then need to help them take actions to improve”
Caroline Löfgren – Chief Sustainability Officer, Hg
Cascade tech into portfolio companies
Successful PE players are learning from their own experiences and injecting tech into their portfolio companies—boosting their performance and readying them for a successful exit. As Ahmed Khamassi, chief digitalisation officer at Stirling Square Capital Partners points out, “It’s about equipping our companies to be marketable—this is something that typically gets missed.”
Stay safe
This study suggests that cybersecurity ranks low on the agenda for most respondents. But the dangers are real, particularly as more information is shared and the threats become more sophisticated. As the managing director of a US-based firm in our survey says, “Cybersecurity becomes more relevant when you are a data-driven organisation. We have to be prepared to mitigate these risks, otherwise the company’s reputation will be at stake.”
Use data to drive your ESG agenda
Regulatory pressure around ESG is mounting and investors are demanding more transparent ESG information. Firms seeking to get ahead of the curve should aim to improve the quality of the data underpinning ESG reporting both in their own organisation and in their portfolio. “Investors want more ESG-related data, not only relating to our operations but also those of our portfolio companies,” says the managing director of a US-based private debt firm with an average target fund size of €500 million-€1 billion. “Since there are challenges in measuring and reporting, we cannot always meet their expected standards.”
As Linus Lund, director – fund controller of Nordic Capital Advisors concludes, “I believe there will be a bigger role for data and analytics in the future, especially if we can get detailed and more granular data from our portfolio companies. It can help us to identify risks and opportunities better and react faster. That probably holds for deal sourcing as well. I don’t think we will have robots bringing us investment opportunities, but you can augment your own thinking and maybe reach conclusions faster than the competition.”
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