Henri Wajsblat, Anaplan’s Head of Financial Services Solutions, interviewed Anaplan partner and Lionpoint Group Managing Director Jonathan Balkin about how new technology solutions can help the private equity sector improve fund of funds (FoF) portfolio analytics.
Lionpoint Group recently released a Fund of Funds Portfolio Analytics on the Anaplan App Hub. Can you share some of the business challenges within the private equity industry that inspired you to build this new app?
Data transparency, monitoring, and reporting are increasingly challenging tasks for private equity. As the asset class has matured, the amount of opaque private data related to thousands of funds and investments has outpaced the operational capabilities of managers and investors alike. With evolving regulatory requirements and heightened investor scrutiny of returns, exposures, and fees, private equity managers are looking to new technology for improved insight into their data.
There are now more than 17,000 active private equity funds in existence, with a record 2,022 funds currently raising capital in the market.1 Tracking key fund metrics such as distribution to paid in (DPI), total value to paid in (TVPI), and internal rate of return (IRR)—as well as static data such as vintage year, geography, industry, fund size, and fund type—already presents a sizeable data management challenge.
Add even more data points related to underlying portfolio companies (enterprise value, cost, market value, EBITDA, etc.) into the mix and the challenges begin to multiply further. Many of the existing systems that private equity managers have in place, be it external software or internal systems built by firms themselves, simply can’t cope with the sheer scale and structure of the data set.
The consequence that comes from using this lacking technology is inefficiency. At many private equity – Fund of Funds firms, investment professionals increasingly find themselves focusing on lower value work, such as reconciling data, fixing spreadsheets, and developing reporting workarounds, rather than analysis and investment strategy.
This can in turn impact investor relations (IR), as an industry or geography query by an important limited partner can result in a scramble between operations, compliance, IR, and the front office to deliver the correct answer. Such inefficiencies have finally reached a tipping point, leading private equity firms to explore new technology to improve their data analysis and modelling.
How have incumbent technologies responded to this business issue and have you identified any pitfalls?
Many software vendors have tried to solve the Fund of Funds data challenge with varying levels of success.
First attempts were focused on building proprietary, centralized databases from which managers could access and analyze data gleaned from public sources and/or data that was manually captured from financial statements and investor reporting. However, the data quality of these databases was either inconsistent or did not go far enough into the detailed levels of financials, cash flows, and underlying metrics that private equity managers were seeking. Many private equity managers simply ended up extracting data from such systems and then worked within spreadsheets as the primary reporting layer.
More recently, vendors and service providers have tried to support Fund of Funds data aggregation through the modification of accounting systems or by offering a managed service, supported by data collection automation. However, these solutions become limited by their own design in that deviances from a standard data collection template or a particular reporting model must be built by the vendor’s development team. This ends up leading to delays and cost increases. Private equity managers instead want the control and flexibility to access, map, and model data in a way that makes sense to their own end users while maintaining a high level of data quality and governance.
Finally, integration with other source systems can be one of the key limitations with incumbent Fund of Funds technologies. Where a manager is looking to consolidate and reconcile data between multiple systems (such as accounting systems, CRMs, etc.), legacy applications often require complex data management builds. Few solutions have yet to reap the benefits of cloud technology, which include reducing the need for complex data warehouses and internally supported IT environments.
How would you describe the benefits that your Private Equity Portfolio Monitoring Fund of Funds app provides to private equity firms?
Lionpoint’s Private Equity Portfolio Analytics Fund of Funds app takes data from source systems and/or Excel® and gives the end user the ability to analyze all key financial, operational, and performance data of their funds.
The model allows users to determine exposure across industry sectors and geographies, and view data easily in a centralized platform. The model produces key statistics such as commitment, remaining commitment, total contributed / distributed, net asset value, return on investment, DPI, TVPI, and IRR for underlying fund investments and their underlying portfolio of assets. The dashboards and visualizations enable firm management and investment analysts to answer critical questions from investors and executives to prepare insights and analytics for use across the firm.
The key benefits of the app are supported by the core functionality of the Anaplan platform. The solution provides many of the benefits of a traditional data warehouse while lending itself as an easy-to-use cloud-based platform for business users. It can serve as a tool for receiving information from multiple internal and external sources, such as administrators and operating partners, to model and evaluate cash flow data at the investment and investor levels. Anaplan’s platform also has the computing power needed to handle the volumes of data that would otherwise cause performance issues within a spreadsheet-based application.
Lastly, it’s flexible. Firms that utilize the Lionpoint app can easily customize and adapt the reporting and data capture elements to their own requirements. The Anaplan solution puts the control back in the hands of business users by enabling them to build the models that are useful to them. For private equity firms, this translates into gaining efficient and valuable insights in a competitive market.
For more information on Lionpoint Group’s Private Equity Private Equity Portfolio Analytics – Fund of Funds app and to learn how Lionpoint Group helps private equity firms improve transparency and performance management, explore the app on the Anaplan App Hub and read Lionpoint Group’s “Anaplan for Private Equity” brochure.
1 “Preqin Quarterly Update: Private Equity & Venture Capital Q3 2017,” Preqin Ltd, November 1, 2017. http://docs.preqin.com/quarterly/pe/Preqin-Quarterly-Private-Equity-Update-Q3-2017.pdf.