How Information Technology is revolutionising business processes in Private Equity and Alternative Investments

On the back of the SAVCA Conference, the Cap40 Private Equity Group held its first group conference of the year on the theme: “How Information Technology is revolutionising business processes in Private Equity and Alternative Investments”. 2 funds, 1 technology integrator and 1 technology provider share their learning on the importance of information systems in their processes.

Perspective from a FoF (LP)

Information Technology is increasingly becoming a driver of the performance of private equity funds, to increase efficiency and ultimately, create value - both externally and internally. Until recently, Microsoft office was the key system used to manage the information process (with a focus on Outlook, Excel, Word and Powerpoint, with the use of shared drive to collect and save the information).

In the wake of the increased number of diversified, international and sophisticated LPs, funds are requested to provide more information, in a timely and consistent manner. As an example, several South African funds are enlarging their investor base from SA investors to international, sophisticated investors requiring more information in terms of performance, deal flows, and accounting / systems in place in the underlying fund and investee companies. Private equity funds are challenged to provide accurate and transparent information, with no margins for errors. Key documents circulated on a regular basis include annual, quarterly reports, capital calls and distributions notices, deals highlights… This flow of information and contacts is better managed through the use of a centralised system and extensive use of mailing lists. From this perspective, a CRM system can significantly improve the Investors relations function of the funds and streamline the information flow process within the team.

Besides, a more stringent regulatory and compliance environment also forced private equity funds to upgrade their systems and start moving from a Microsoft Office system to a more integrated, comprehensive CRM system.

Internally, private equity funds are growing and managing a higher number of companies, funds and assets. In this context, teams necessarily feel the need to track the performance of their investments, to ensure that a consistent valuation / accounting system is used across the board, and that dealflow is properly monitored (including deal pipeline, deals tracked, screened, approved or rejected).

Perspective from a Private Equity Fund (GP)

The importance of choosing the relevant CRM system has been highlighted: Some funds have to try and implement different systems before finding the right one. The key areas where an efficient CRM will quickly start to make the difference include the documentation of:

  • The investment process for each deal
  • The compliance process implemented at the fund level
  • The communication, correspondence….with the investors and LPs
  • The performance of the underlying investments (including the computations of returns)

One of the key features often highlighted by funds include investor portal – created as a website accessible to investors who can directly download all their relevant documentation (from quarterly reports to capital calls notices….)

Perspective from a System Integrator and Provider

Software companies and integrators focus on the key areas of concerns for their clients: clients are expecting the implementation of an industrialised process – including:

  • The automation of the process
  • The security
  • The segregation of data
  • The ease of handling the information (including the importance of the ability to export data into pdf, excel….)
  • The ability to compare data to industry benchmarks

In the future, the industry is expected (and already started) to develop systems compatible with Apple and Blackberry – in addition to Microsoft.

In this context, the industry highlights the importance of involving the entire team in the process, to carefully identify the needs and requirements of the CRM system to be implemented to avoid a failure in the implementation of the new system (defines as a project not being properly used by the team or not at all or even worse, to see the team giving up on the project, leading to a direct loss for the fund). Indeed, the implementation of a new system requires time, training and commitment.

Sets of best practices observed in the industry are starting to be put together by the industry.

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