How to Choose the Best Portfolio Monitoring System for Your Business

September 14, 2022

Portfolio monitoring tools play a significant role in managing portfolio risk by improving performance and increasing transparency. Hence, careful consideration should be given while selecting the right tool to put in place.

[Editor’s note, this is the first installment in Lionpoint’s series portfolio monitoring software. For the second article on system selection, click here.]

What is a portfolio monitoring system?

Private market funds are one of the most profitable investments in modern times. However, they can also be a risky investment. This is why it’s important to monitor and analyze investments regularly. For example, investments in private equity funds made through a management company , involve money going into multiple funds at once—and some of those may be performing better than others. So how can investors make sure all of them are doing well? The answer lies in finding a suitable private equity portfolio monitoring system that can help track how all those investments perform over time.

Why do you need a portfolio monitoring system?

Portfolio monitoring is a critical component of private equity fund management. This function allows investors to have a better understanding of the financial health of their portfolio companies and helps them make better decisions about whether or not to continue investing in those companies. It also helps investors manage risk by providing insight into how each company is performing financially and what opportunities exist for growth.

The goal of portfolio monitoring is to provide investors with more visibility into their investments so that they can make informed decisions about future funding needs and exit strategies.

Portfolio monitoring is often confused with financial reporting, but they are actually two different processes. Financial reporting involves gathering data on the financial performance of a company and presenting it in an easy-to-understand format. Portfolio monitoring goes beyond just gathering information about the company’s current state to include analysis of how that company fits into an organization’s overall portfolio strategy.

When to consider evaluating portfolio monitoring vendors

There are several reasons to evaluate a new portfolio monitoring system. If you’re looking to add portfolio monitoring capabilities to an existing system, a good time to evaluate vendors is when:

  • You’re considering replacing your current system. Evaluating vendors can help identify gaps in functionality and features that might be needed by your organization. In addition, it can help identify any areas where the vendor has made improvements since the last time you evaluated it.
  • You want to add new capabilities or functionality (such as new asset classes) but don’t want to invest in developing those capabilities internally. A third-party vendor that specializes in private equity software may be able to do this for you quickly and cost-effectively, with minimal disruption of operations during implementation.

Evaluating different systems is an excellent opportunity to explore the capabilities of a new system. For example, if you’re considering adding new asset classes such as hedge funds or venture capital, it’s important to evaluate which features are available in different portfolio monitoring systems. Evaluating vendors will allow you to compare the functionality and cost between different products.

What are some Common Pitfalls and Key Considerations for your evaluation?

It is essential to understand the current capabilities and limitations of portfolio monitoring systems. Evaluate each vendor by asking these questions:

  • What are the current capabilities of the portfolio monitoring system?
  • What are the limitations of the portfolio monitoring system?
  • What are the future capabilities of the portfolio monitoring system?
  • How does the portfolio monitoring system fit into my organizational technology stack?

As with any decision-making process, the foundation lies in defining the problem and setting goals. If your goal is too big and you don’t have time or resources (an adequate budget) to achieve them, then you could just give up on that goal altogether. Be ambitious but realistic! It might also help if your desired outcome has an end date.

How to Prepare the Implementation

For any software solution you select, examine how well it can fit into your organization and to ask how this system will scale with your business. How can you ensure team adoption? Do I have data in a readily-available form to start the implementation? Can you integrate this system with others in your organization?

These are questions that need answered before implementing a private equity portfolio monitoring system.

Portfolio monitoring tools play a significant role in managing portfolio risk by improving performance and increasing transparency. Hence, careful consideration should be given while selecting the right tool to put in place.

  • Can the tool reporting on multiple portfolios across different asset classes such as equity, debt and real assets?
  • Beside Excel-based reporting and analysis, what other options can the tool enable for a more efficient data analysis?
  • Can the software provide visualization to graphs and charts that can be used for back-testing strategies?

How Lionpoint can help

Lionpoint is a leading global consulting firm delivering operations transformation and technology enablement solutions to the private markets industry. Our firm partners with leading portfolio monitoring solutions such as 73 Strings, Cobalt, Chronograph, Pereview, RealPage, Yardi and iLevel.

Lionpoint’s consultants have domain expertise across private equity, real estate, infrastructure, and private debt. Its core services include strategic advisory, operating model optimization, technology roadmap and solution selection, and systems integration to solve the complex operational and technology challenges across the front, middle, and back office.

For more information, contact us here or below

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