STATE OF PLAY
FINDINGS & INSIGHTS:
HOW DO PRIVATE MARKETS PERCEIVE THEIR USE OF TECHNOLOGY AND DATA RIGHT NOW?
8 minute read time
KEY FINDINGS
89% of firms with funds of €1 billion or more have an established data strategy that drives their deal-making
100% of firms with funds of under €250 million have a dedicated resource focused on their data strategy
44% of firms with larger funds are confident in the quality and accuracy of third party data sources
STATE OF PLAY
FINDINGS & INSIGHTS:
HOW DO PRIVATE MARKETS PERCEIVE THEIR USE OF TECHNOLOGY AND DATA RIGHT NOW?
8 minute read time
KEY FINDINGS
89% of firms with funds of €1bn or more have an established data strategy that drives their deal-making
100% of firms with funds of under €250m have a dedicated resource focused on their data strategy
44% of firms with larger funds are confident in the quality and accuracy of third party data sources
Data can be a game changer for private markets. From portfolio management to deal sourcing, investment managers in firms of all sizes are snapping up new digital capabilities as they race to transform their operations and get ahead of the competition.
As the CFO of a multi-asset fund management firm in the US with an average target fund size of €250 million-€500 million says, “The financial data of a company can provide insights into the profitability and future capabilities of a target company. Before investing, knowing the financial background and strength of a target company is vital.”
It’s not just about targets: “The process of monitoring financial and operational data is critical for our company’s development and market presence improvement,” says the managing director of a German private debt firm with an average target fund size of €500 million-€1 billion. “We know where we stand compared to other companies in the same sector.”
Mind the gap
Despite this, our survey reveals a digital divide between firms with larger and smaller average target fund sizes.
Specifically, 89% of the firms with the largest average target fund size (€1 billion or more) say they use technology to support workflow and back-office processes and manage their investment portfolios, as well as having an established data strategy that drives their dealmaking. By contrast, just 3% of those with the smallest average target fund size (less than €250 million) can say the same.
Firms in the middle of the pack (with average target fund sizes ranging from €250 million to €1 billion) are most likely to say that, while they do not have a data strategy in place, they do make extensive use of tech in areas including workflow, back-office processes and portfolio management—they are all extensive tech users but have no data strategy steering the ship.
In short, in almost all cases, the likelihood that a firm is making extensive use of technology and backing this up with an established data strategy is directly proportional to the firm’s target fund size.
Mind the gap
Despite this, our survey reveals a digital divide between firms with larger and smaller average target fund sizes.
Specifically, 89% of the firms with the largest average target fund size (€1 billion or more) say they use technology to support workflow and back-office processes and manage their investment portfolios, as well as having an established data strategy that drives their dealmaking. By contrast, just 3% of those with the smallest average target fund size (less than €250 million) can say the same.
Firms in the middle of the pack (with average target fund sizes ranging from €250 million to €1 billion) are most likely to say that, while they do not have a data strategy in place, they do make extensive use of tech in areas including workflow, back-office processes and portfolio management—they are all extensive tech users but have no data strategy steering the ship.
In short, in almost all cases, the likelihood that a firm is making extensive use of technology and backing this up with an established data strategy is directly proportional to the firm’s target fund size.
How do fund managers describe their organisation?
We use technology to support workflow and back-office processes and manage our investment portfolio, and we have an established data strategy that drives our deal-making
AVERAGE TARGET FUND SIZE €1bn +
AVERAGE TARGET FUND SIZE €500m – €1bn
AVERAGE TARGET FUND SIZE €250m – €500m
AVERAGE TARGET FUND SIZE <€250m
We use technology to support workflow and back-office processes and manage our investment portfolio, but have no established data strategy
AVERAGE TARGET FUND SIZE €1bn +
AVERAGE TARGET FUND SIZE €500m – €1bn
AVERAGE TARGET FUND SIZE €250m – €500m
AVERAGE TARGET FUND SIZE <€250m
We only use technology to support workflow and back-office processes but have no established data strategy
AVERAGE TARGET FUND SIZE €1bn +
AVERAGE TARGET FUND SIZE €500m – €1bn
AVERAGE TARGET FUND SIZE €250m – €500m
AVERAGE TARGET FUND SIZE <€250m
SOURCE: Aztec Group & Acuris Report – Differentiation Through Data (Nov. 2022)
Everyone agrees: A data strategy could make a difference
What’s more, among those firms that lack a data strategy, a majority (76%) agree that their organisation would benefit from establishing one.
“We have an overall data strategy and it’s a developing one,” says Linus Lund, director – fund controller of Nordic Capital Advisors. “We are working on centralising storage and access to data. It’s easy to think you need to collect data just because that’s a good thing to do. But it raises several questions. Why do you need it? What’s its purpose? You can collect data and then work out what to do with it. Or you can look at the data you already have and work out how to make it accessible. I think the answer lies somewhere between the two.”
Breaking down the survey findings by respondent group, multi-asset investment firms are most likely to say they use technology extensively and have an established data strategy that drives dealmaking. This may be down to the complex nature of their investments—having a data strategy in place allows them to manage a wide-ranging portfolio as well as identify new opportunities in an extensive potential investment pool. By contrast, approximately the same percentage of real estate fund managers say, while they employ technology extensively, they do not have a data strategy in place.
"Why do you need it? What’s its purpose? You can collect data and then work out what to do with it. Or you can look at the data you already have and work out how to make it accessible. I think the answer lies somewhere between the two."
Linus Lund – Director–Fund Controller, Nordic Capital Advisors
Bridging the strategy gap
While almost two-thirds of respondents overall do not have a formal data strategy, most of those with one in place also have a senior resource assigned to the development and ongoing management of that strategy.
The fact that such a large proportion of respondents (81%) has committed resources to their existing data strategy hints at the complexity of integrating technology into existing processes. It’s not simply a matter of bringing in technology, stepping back and letting it run. People remain an essential ingredient.
As the CEO of an Italian firm with an average target fund size of less than €250 million puts it: “Removal of instinct is not good for the business. Although technology is helpful for decision-making, we cannot rely on it completely without having any humans around to implement these decisions.”
Notably, respondents at both the smallest and largest ends of the fund spectrum are the most likely to have a dedicated senior resource for their existing data strategy, with every firm in the sub-€250 million category and 91% in those in the €1 billion-plus group saying they have such a resource already in place.
Among firms in the middle of the pack, 60% of those with average target fund sizes of €250 million-€500 million are more likely to say they do not have a dedicated senior resource, but plan to establish one in the next two years.
How many fund managers have, or plan to have, a dedicated senior resource assigned to the development and ongoing management of their data strategy?
Average target fund size €1bn +
Average target fund size €500m – €1bn
Average target fund size €250m – €500m
Average target fund size <€250m
SOURCE: Aztec Group & Acuris Report – Differentiation Through Data (Nov. 2022)
Data sources: Risk and rewards
Reliable investment- and deal-related data is the bedrock of successful decision-making. Almost all respondents in our survey have an in-house team to help them gather data for this purpose. In addition, many acquire data from both third parties and deal sourcing platforms.
Third-party data sources are used by nearly two-thirds of respondents overall and by 44% of respondents representing smaller average target fund sizes (less than €250 million). This proportion nearly doubles to 83% among firms with the largest average target fund sizes (more than €1 billion).
Breaking this down to the asset level, multi-asset funds are more likely to use third-party sources, while real estate funds are least likely to go this route (76% versus 55%, respectively. While the gap between the two is not massive, this may reflect where each fund finds itself on its data journey.
Proprietary deal sourcing platforms, meanwhile, are used by 45% of respondents overall. The largest firms are the most likely to use these (59%), with smaller firms the least likely (31%).
Is data confidence a concern?
Respondents who use third-party data and deal sourcing platforms are broadly confident about the accuracy and quality of the data they get. Among firms that gather data in this way, 44% of those representing larger average fund sizes (€1 billion or more) are likely to be very confident in the accuracy and/or quality of that data—again, likely a reflection of the money they can invest in that data.
By comparison, only 19% of firms targeting smaller funds (less than €250 million) describe themselves as very confident about the accuracy/quality of third-party market data or deal sourcing platforms. This group is typically more cautious about their external data sources—these respondents are most likely to say they are only slightly confident about data quality.
At an asset level, multi-asset firms are the most confident in the accuracy and/or quality of the data received from third-party suppliers or deal sourcing platforms.
As the partner of a private equity firm based in the US with a target fund size of less than €250 million says: “The lack of transparency regarding data sources and the reliability of these sources is a challenge. We do not want to take on any liabilities or breach data protection norms.”
Is data confidence a concern?
Respondents who use third-party data and deal sourcing platforms are broadly confident about the accuracy and quality of the data they get. Among firms that gather data in this way, 44% of those representing larger average fund sizes (€1 billion or more) are likely to be very confident in the accuracy and/or quality of that data—again, likely a reflection of the money they can invest in that data.
By comparison, only 19% of firms targeting smaller funds (less than €250 million) describe themselves as very confident about the accuracy/quality of third-party market data or deal sourcing platforms. This group is typically more cautious about their external data sources—these respondents are most likely to say they are only slightly confident about data quality.
At an asset level, multi-asset firms are the most confident in the accuracy and/or quality of the data received from third-party suppliers or deal sourcing platforms.
As the partner of a private equity firm based in the US with a target fund size of less than €250 million says: “The lack of transparency regarding data sources and the reliability of these sources is a challenge. We do not want to take on any liabilities or breach data protection norms.”
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