by Cameron Nicol, Senior Marketing Manager – eVestment Private Markets
The private fund CFO is stuck between a rock and a hard place.
As the private fund industry has exploded in AUM, more than sevenfold since 2002, this aggressive growth has brought significant opportunities for the management companies. Yet it has not been without growing pains that have created a new set of challenges, with the CFO and COO role bearing the brunt of these.
With allocations to private funds making up more significant portions of investors’ portfolios, greater oversight and scrutiny by investment committees and boards is increasing the volume and complexity of requests for data, transparency and insight into deal and fund performance.
This is now a staple of both their due diligence and monitoring. GPs are expected to service these requests in a timely and comprehensive manner – and the way in which they are handled can have a significant impact on the continuation of a relationship. With LPs having greater choice in the market and consolidating their number of relationships, the pendulum of power is starting to swing for some groups.
Yet strong investor demand for private funds is also leading to a desire by GPs to “make hay while the sun shines” and come back to market quicker than ever before, with significant fund size increases and investor base expansion. The combination of these two elements is the “rock” in our equation.
The Hard Place
The “hard place” is that the private funds industry has been slow to adopt new technologies for specialized and critical work such as track record data management and analysis, instead relying on default systems such as spreadsheets.
The inherent inefficiencies and manual-components of spreadsheets are creating bottlenecks and unnecessary risk that do not facilitate the firm’s growth strategy nor the pursuit of Operational Excellence that CFOs are increasingly focused on achieving at their own firms.
Why is Excel the Norm?
Excel is the default for many institutions to manage, store and analyze their track record data due to a variety of perceived benefits. In reality, these are actually the same things that make it no longer fit-for purpose as a core tool for institutional quality fund managers.
|Flexible||Excel can be used for a huge range of tasks – and the limit is up to the user’s ability.||Without being purpose-built for dealing with private fund performance calculations it is a hugely manual effort to build and update analysis, which is neither efficient or protected against human error.|
|Accessible||Everyone in your organization has access to it, theoretically enabling everyone to make use of the data and insights.||The complexity of the level of analysis of private fund performance means an organization usually has a small handful Excel experts that are relied on for the work. The sheets are locked down and Leadership or Investor Relations have to route requests through a dedicated function to service specific requests, and can’t self-serve or quickly draw insights, creating inefficiencies and key-person risk.|
|Unlimited||Your organization can choose how to build your templates and models for use.||Each team member has their own way of working and no consistent process is defined. Questions arise over quality and confidence in the output without a truly repeatable process and when one of the team leaves, the template has to be re-built.|
|Distributable||You can easily share information with anyone, internally or externally.||Distribution is too easy. While you can password protect a spreadsheet, you lack true control of your data once it has been distributed. You don’t have any insight into who has accessed your data (internally or externally), when have they accessed, and the ability to revoke access if necessary.|
|Scalable||You can store a huge amount of granular data and organize using multiple sheets and tabs. Even hundreds.||You store years of historic track record performance data in separate files, each with hundreds of rows of data that becomes unwieldy and cumbersome to manage and actually draw insights from. There is no ability to easily view data across time periods and drawing insights or responding to requests takes hours of manual labour that could be spent on higher-value tasks.|
Purpose-built analytics software for the private markets actually delivers these benefits as it is designed with the specific use cases and requirements in mind. Consequently, implementation helps CFOs mitigate risks, create new efficiencies and empower their firm with the insights they need, all to retain their competitive edge and free themselves from the rock and a hard place.