Watch this webinar co-hosted by Lionpoint and 73 Strings including panelists from Vista Equity, WestCap Group and Blackstone.




 

Watch above as Nataliya Kuzhylina (Vice President, Vista Equity), Jaime Hildreth (Partner, WestCap Group), Keary Parinis (Senior Vice President, Blackstone), Jazmin Hogan (North America Lead, 73 Strings) and Jonathan Broch (Executive Director, Lionpoint Group) discuss Emerging Trends and the Role of Technology in Valuation & Reporting.

 

TRANSCRIPTION

Jonathan Broch:

I know everyone is excited to hear from our panelists. Without any further delay, allow me to introduce you to them.

We’ll start with Nataliya Kuzhylina, who is a VP in the office of the CEO at Vista Equity Partners. Now, Nataliya is responsible for defining and implementing Vista’s overall data strategy. And prior to Vista, she spent five years at Apollo Global Management.

Next, we have Jaime Hildreth, a partner at WestCap Group, and a member of its Investment Committee since its inception in 2019. Jamie was also previously head of strategy for private capital markets at Ipreo, and previously held senior finance positions in the private equity finance team at Blackstone.

Next, we have Keary Parinis, a senior vice president at Blackstone, who leads valuations teams across the firm’s hedge fund solutions, GP stakes and insurance solutions businesses. Keary also has a background in software development, technology consulting, and investor reporting.

Finally, we have Jazmin Hogan, the North American lead for 73Strings. Over Jazmin’s 15-year career, she’s been director of evaluations and analytics, and has evaluated and implemented middle office technology solutions at Kohlberg & Company, Apollo, and at Blackstone.

We’re very excited to have each of you here today, to contribute to our discussion. We’d like to kind of kick things off. Keary, I’d like to start by going to you.

Paint a little bit of a backdrop for us, and just help us sort of understand, how you’ve seen valuation practices evolve in recent years? And what are the overarching patterns and trends that you’re seeing?

Keary Parinis:

Sure, thank you for the introduction. So I’d say, 10 years ago, automation in the evaluation space seemed centered around data centralization and data collection from the portfolio companies. And this is really helpful, in terms of pretty standardized reports for evaluation committee materials and LP reporting.

Beforehand, we had to copy and paste Excel tables from our evaluation models, the PowerPoint PDF that we’re sending on some stakeholders. When numbers changed, and they did frequently throughout our iterative process, we spent so much time reviewing that sure, that updates made it through the final work product.

During especially volatile times, it wasn’t uncommon that still data would be caught later in the review process, much to our chagrin, and we’d have to fix it, and that would impact downstream review user information. So these centralized data solutions really eliminated these errors.

At the same time, it made our process much quicker, by eliminating hours of review. This is a big game changer for us. We were able to repurpose that time, to do more interesting analytical work, such as sensitivity analysis, creating additional dashboards.

I think another big benefit of simplifying the data collection process is that it allowed us to transition much of these functions to offshore resources, and actually realize cost savings. And we continue to do that today, to augment our staff, and our pool of offshore resources and has grown cause of it. And they become experts in managing our data flow.

Now that the focus on data centralization’s been so helpful, we’re thinking there’s so much more that we could do to automate, and then have us thinking about, “What’s next,” right?

Today, we’re pushing data from evaluation models, and can do database deployment from a report elsewhere, but there’s also a ton of work that goes into these models themselves. And most of that work is done in Excel.

My team, they go out and they collect market data from various vendors. They’re pulling information from portfolio companies, they’re building valuation models that include our own assumptions.

So we’d love to extend the automation into the valuation models, and into ad hoc reporting. And we’re happy to see, more recently, there are workflow tools out there that seem to address the valuation modeling part of the work. My colleagues and I were seeing solutions that capture valuation work workflow from an end to end perspective, including deal onboarding, market data updates, methodology selection, and also, communication our stakeholders.

We’re seeing these tools in the market, and some are under development, that create various types of valuation models. They’re moving data from Excel to Cloud databases, which, I think is ideal, in terms of just managing data.

And we’re even seeing some, have these machine learning algorithms that simplify the process of loading the deal data into the databases. Then that’s ideal for onboarding, which can be daunting, especially we have new technology. So I find that especially intriguing.

I think that our appetite for adopting a new technology will consider those onboarding efforts. So that’s what I’m seeing. I’ll pause there for questions or additional commentary.

Jonathan Broch:

Yeah. I mean, that’s excellent. I mean, it sounds like you’ve seen things progress quite a bit over time, but there’s still a ways to go, still more opportunity.

Jamie, I’d like to hear your perspective, as well, your role in the Investment Committee. What are you seeing, in terms of overarching kind of industry trends?

Jaime Hildreth:

Yeah. And I would just comment, as well, I have a long history with the team.

Jazmin and I met back in 2008, when I joined Blackstone from a portfolio company. It was a really interesting time to join Blackstone, in that moment, because they had just gone public.

Actually, none of this infrastructure at the time existed, it was new. So, really fun to build out the capabilities there, the infrastructure, the team, and all of that. As I look at the evolution, given my days at Blackstone, spent some time, on the technology side, as well.

And now, my role at WestCap, I have a bit of a broader mandate. I do sit on the Investment Committee. I’ve really seen this evolution of what, in the beginning stages, were very much, I would say this, kind of like single source of truth administrative, “Let’s get the data, let’s make sense of it, let’s make sure that we’re providing transparency to our investors,” which is obviously critically important.

But really moving on to, “Okay, how do we use this data for risk management purposes? So things like, “What should be on our watch list, either up or down? Where should we be leaning, in or out?” So really giving the firm signals as to where they potentially have issues.

To me, it’s the “So what?” Because, to Keary’s point, so much goes into the data collection, the scrubbing. So I think really evolving to, “Okay, let’s make sense from a risk management perspective,” and a lot of focus on performance relative to the Investment Committee case.

I think that’s a very telling measure, because you can very quickly see, “Okay, this company is either on track, or it’s about to take off.” So I think that’s the second phase.

And then, ultimately, evolving to using the valuation data for more decision making. How do we make sense of this data, in terms of optimizing the portfolio, in terms of prioritizing our resources?

And I think, in order to get from that, what I’ll call more administrative, to risk management tools, to actual decision making tools, where you’re really making add-on investments, monetization decisions? That absolutely requires technology.

You can’t do it without. It’s all intermixed. So I think firms are waking up to, in order to get to that phase, you need the technology, you need to lean in there.

Second, in addition to information flow, I would just say governance, broadly. Back in the day, it used to be, it was okay for the deal teams to run with evaluations. I think you see more and more the importance of independence, and having more dedicated teams, and having really robust valuation committees. For us, it’s a subset of our Investment Committee.

And then, just the third point on timing, I think you’ve seen, evolution around the speed to report. I think, when Blackstone and others had gone public, it was very much, it changed the game, right?

So what used to be 60 days plus after a quarter end, it became 45, then it became 30. And then, now, it’s 15.

Even for firms like WestCap, of our size, we report the valuations 15 days after the quarter close. So I think the information flow is getting better at governance and timing, but again, none of that happens without technology.

Jonathan Broch:

Excellent. Well, thank you, Jamie. And I think that her background in that context will certainly anchor our discussion here today.

Nataliya, Jazmin, any comments on this first topic, just in terms of industry trends, before we dig a little deeper in our discussion?

Jazmin Hogan:

Yeah. I’d just second what both Keary and Jamie said. I definitely think, having worked what Jamie, way back when we were making that initial transition from Excel, to using systems for data collection to now, and trying to move into the future, there has been a ton of change. Trying to find the right solutions to facilitate that change is the new challenge.

But I do agree with pretty much everything they both said. I think we’re all very like-minded when it comes to that, in terms of figuring out, how the process should run, getting these real teams out of the process, out of that, I’m sure it comes from having worked with Jamie for seven years.

Jonathan Broch:

Terrific. All right, we’ll piggyback on that first topic, and would love to just get a perspective, Nataliya, from you, on what do you see, from a risk perspective?

What do you see as the biggest potential risk overall, with valuation processes today? And where specifically do you think technology can alleviate some of those risks?

Nataliya Kuzhylina:

Yeah, so I’m sure there are many risks that arise from the overall data process, evaluation process, but I can see say that to me, I can see at least five risk related to valuation process, where actually, technology can make things better.

Since I’m in data management, to me first, and obviously, the most relevant risk is manual valuation processes, and data issues that arise from that. In many funds, the existing workflow remain lack of collecting and processing. And reporting evaluation information requires still extensive manual work. It’s fraught with errors and delays, and it’s time consuming, extremely labor intensive.

In addition, lack of automated control sense standardization leads to unreliable and inconsistent results very often, right? And even within one portfolio, right across different funds. This is something that, in my view, can be very easily solved with the modern software tool that helps to streamline data collection and processing, like valuation, put controls over data entry and overall rigor around the valuation process.

And then, second reason, I’m sorry, is valuation method methodology, right? Since big firms, funds, own assets that are not quoted, there is no market price with which to value investments. This creates post-accounting and wider commercial risk.

Because valuation method can vary, depending on profitability of the second, depending on the profitability of the asset, in other words, so the change in valuation methods can contribute to change in equity value. In my view, technology can minimize the risk by creating transparency for both, like for LPs, right? By value of the asset, using different methodologies and provide, arrange output among all the used methods, instead of using just one.

It would be similar to the credit agencies that issue a credit report. For example, the results may slightly vary, based on credit score, if it’s calculated by Equifax or Experian or TransUnion, but you can clearly see what is your range and where you stand, in relation.

So I think technology could be, it just speeds up, because right now, in many firms, or maybe majority firms, it’s still a super manual process. If we use a tool, it can be streamlined.

Then obviously, what Jamie also mentioned, it’s timing, right? Timing of valuation still remains an issue. So I think use of technology will, definitely can speed it up.

And another part of the timing, I think, is the valuation. When you purchase an asset, you value that cost, but then you have to, every period, fund manager will generally review based on the investment performance, right? In most cases, a prior period is useful valuation that may have a limited relevance to the current value, due to a significant time lag.

I know that, so if you have the data, and available faster to you, you don’t need to have the time in. You can basically evaluate, do projections of, based on the current period, right? So I think this is something that technology, again, could be super helpful.

A fourth risk is the risk that investors may face, and is related to the lack of external verification of the data used to underpin valuations. That can lead to the valuation fraud, right?

Technology, again, can provide necessary transparency for the investors and regulators, as well as we can use approval workflow to review and appropriation results, and sign off on them.

The last, probably minor is, but still a risk, is for the managers investing in foreign markets. So valuation software can calculate enterprise value in local currency, and translate it into the most functional currency of the font, using the most relevant market effects rate. So that’s, to me, are the five key risks that I personally foresee, that the technology can solve.

Jonathan Broch:

Excellent. Those are tremendous insights, Nataliya, thank you for sharing those. Jazmin, what perspective you offer for us here on this topic?

Jazmin Hogan:

Funny that Nataliya went first. I think that Nataliya covered them all, and pretty succinctly. I would say that now, as we stand here with the backdrop of inflation, and supply chain issues, and a potential, spending recession, we all need to, in addition to having those flexible methodologies.

These are things that we’ve thought of at 73Strings, is just having multiple approaches, and being able to flex between those things. If you’re looking at your comps, being able to have a much broader universe, that you may not be using, but you can see where the rest of the industry is trending, versus your portfolio company.

Or, in your income approach, being able to flex those projections, as you go along and compare what your base case was, to this current one, and very seamlessly see charted for you, how things have moved.

We also thought about, if you’re a credit investor, being able to, for example, put in an inflation shock against this particular instrument, or your entire portfolio, and being able to see across the board, how the current environment is affecting those things.

I think, from an audit perspective, having the transparency, being able to trace all of that is really important, but also keeping it flexible, so that you can see where things are going, so that you can see daily, we can daily take a look at how your evaluation is trending, for example.

I think those measures, just basically having all of your bases covered, but also being able to do the analytics around it, is super helpful in minimizing that risk, having everything in a system where your inputs are all coming in together, they are consistent between investments.

And also, even your comps, I’m sure all of us have seen in instances where one deal team has the exact same M&A transaction, but they have a different multiple there. So having that consistency, using a system will alleviate a lot of those concerns, and make both your audit process, and your own review, depending on how your team works, your own review of the valuations, much easier.

Jonathan Broch:

Going back to some of the comments that have been made so far, and opportunities to really create more of a streamlined process here, we talked about things in the area of timeliness. Jamie, you touched on risk management and how data can be used from that perspective. There’s the ability to centralize this function and create transparency, deliver more workflow.

Lot of really good, good topics that resonate. From my perspective, at Lionpoint, we still see a lot of firms still using Excel-based models. We’d love to just hear from this group. So there’s technology that exist solve for some of these things.

What are the barriers that are preventing firms from leveraging technology, and how do you lower those barriers, so that firms can better adopt technology? Is it a change management challenge? Is it more than that? We’d love to hear perspective from each of you.

Jazmin Hogan:

Yeah. I mean, I’ll go first. I think you hit the nail on the head with change management. I’ve been in situations where you’re trying to make the switch out of Excel into technology. I think a lot of firms did that around 10, eight years ago. A lot of us are still going through that switch right now.

But the biggest barrier was just being clear in the communication, understanding what each team’s roles were going to be. I think there’s a lot of fear when it comes to change, your investment teams tend to be, and not just investment teams, I think also, senior management people are concerned about whether you’ll still have the flexibility.

A lot of teams, for us, valuation is more of an art than a science, necessarily. You need to be able to adjust to whatever’s happening in the market. If you have a very stringent technology that won’t allow for that, it makes things harder.

I think that fear of change drives a lot of the barrier, and having executive buy-in, making sure that your teams understand what might be in it for them. So a lot of it, what happens in these situations is, for example, with the investment teams, they’re putting a lot into these systems, they’re collecting data, they’re talking to their portfolio companies, but it’s like, what do they get out of it?

And I think, having a technology, in our case, where teams can very easily see what they get out of it. They get the scenario analysis, they get the modeling, they got being able to test their portfolio, or for an IR team, getting your reporting out, or being able to flex a track record, et cetera, all those things are important.

So I think the biggest barrier is just getting the teens on board. We’ve thought about many ways in which you can do that, but curious to hear what everyone else has faced.

Keary Parinis:

Jazmin, I’ll second that, just to piggyback on what you’re saying. I think it takes a significant time and effort to, you got to assess the current process, identify the gaps in technology, prioritize the various pain points, and then find the amount solution. Firms are handling day to day work, and things always seem to be working. They’re going to be worked on.

And I think it’s really challenging for them, more for carving out time, and then take a step back, and assess their current situation. After they’ve done the work, they need to find and develop a solution, and incorporate this new process. And I think they find it daunting.

I think these barriers can be lowered by the folks that are rolling out the technology, just having the people, the valuation workflow. They can do staff augmentation, offshore resources, consultants.

The company developing technology may have staff on board, and help, one hand that could help. These are the sorts of things that I would think about. That’s where you get over those barriers.

Jaime Hildreth:

I would just add, I mean, to me, it’s pretty, it’s simple, in the sense, it’s got to come from the top down. So you need a champion within the firm to say, “This is important for doing it,” and then mobilize the team. It starts from the top, so, that executive sponsorship that Jazmin touched on.

Then, I think, you really, you need someone to own it day to day. You’ve got the executive sponsorship, and then you have that individual in the organization that says, “This is mine, I own it, and I’m going to get to this, so what?”

Again, you can do all of this, but it’s like, “Great, so what, how do I get value out of that?” So I think that takes real ownership, and someone sees the value that they’ll be able to add to the organization.

Nataliya Kuzhylina:

Yeah. I think everybody just hit it on the nail, so it’s three, four major obstacles, that everybody facing. I think it not only related to, it’s overall technology in private equity firms, like first one, it’s that failure to what Jamie just said, engage effectively with senior business stakeholders.

Because, before you get that sponsor, you have to make sure, you have to be able to make a business case, that would resonate with the senior stakeholders. If you failed with that, it would weaken your credibility and influence and success of your project, if at all, it will be approved, right?

Because, and to be successful, I think that leader should practically engage and build strong collaborative relationship at multiple organizational levels. So that would help to achieve objectives.

And then, second reason, I think that it’s, asset managers are often not clear on benefits that technology can bring to the table. And I think this is fundamental cultural issue of private equity firms, because they usually start small and grow very rapidly in a short period of time.

They outsource some of the key functions to external providers, and use Excel to manage the rest of the processes. And it works for five, 10, sometimes 20 years.

So when the questions of bringing a new technology to automate the process comes out, the management is often reluctant and fails to see the benefits, right? I think that already, ladies, Jazmin mentioned that you have to showcase the benefits.

I am personally a huge benefit of KPIs. I think that setting them up at the beginning of the initiative, and show how the process will change after the technology deployed, is a strong selling point.

For example, if you talk about, I don’t know, solving this challenge, you will streamline data collections, standardized and automate metrics computation, and I don’t know, health cutting valuation process by at least 30%, and clean up thousands of man-hours across the firm, reducing risk by 80%, et cetera, et cetera, so I think these type of tangible benefits resonate very well with the management, right?

And then, obviously, this is where I jumped on what you, Jazmin, started. I think the most important obstacle in is technology adaptation, and very often, is unsuccessful or partial. For example, many project management teams currently, and all the software deployment resides with IT teams, right? When technology team see project as complete, they see it after the software actually deployed and available for the usage, right?

What happened is that actual change management is never part of that project. And when it comes to private equity, change management is probably the most important step.

I saw recently a report by Dell Capital on valuation software, and what was interesting to see is that companies who successfully deployed the tools, some of them are portfolio data collection or evaluation tools. But then, they abandoned those tools after just few months.

That’s why I think that key here is to ensure that first change management is a factor of any project, and it is not reduced to one hour of training, right? So it’s a cool process.

And then, second, ensure that departments change management and sponsoring the initiative in promoting and enforcing the usage of new technology. That’s what Jamie told about the sponsorship. So I think these are two key factors, and ownership, obviously.

Jazmin Hogan:

Right. I think the ownership is really important having that champion, who owns the product, who owns the product’s interaction with the firm, and can keep people, both using the system, and then also staying abreast of what new changes are.

Because I know, when we first implemented a system at one of my previous firms, we all got very good, and we built a ton of infrastructure around it, because it wasn’t quite where we needed it to be. It eventually got there, but we had already built all the stuff. There was no need.

So, just staying on top of what the innovations are, and in staying closer to the product. But I also think I have benefited from just having relationships with peers in the industry, and understanding how they’re doing things at their firms. That’s been important, too, in these processes.

Jonathan Broch:

Awesome. I love the really practical advice about how to get started, and lower some of these barriers, and start to drive technology change in the organization. I think it’s be going to be really useful for everyone here.

See if we’ve got a couple questions that have come through on the chat. Before we go to the questions, I’d just like to give everyone here on the panel an opportunity, and we’ll start, Keary, with yourself.

Just what would be the number one word of wisdom, piece of advice that you’d want to leave your colleagues with, and share with them? And when they think about technology, and how to best leverage it for valuations and reporting? Top thing.

Keary Parinis:

Yeah. I think I’d extend the point about having the champion. Not have a champion, but I’d take it further.

I would make sure that other leader’s organization understands how the technology is helping the organization. And they’ll help encourage other users to adopt the technology, given their leadership positions.

You got to have a plan to train the users, encourage the power of users, and look out for the way the doctors … Change is not easy for some people. You might have someone who knows the technology really well, make sure they’re available to do some hand holding.

As the new users get a customer way of doing things, you got to help users navigate their early growing pains, listen to their complaints, make adjustments as needed, but don’t give up on the new process. Don’t compromise.

These stragglers will pop up, and they’ll try to revert back to the old ways. So you need to find out, what are their roadblocks, and just really help them comply.

Oftentimes, it may just be, they just didn’t take the time to do the demo right, or learn it. So you really got to stand on top of it.

To Nataliya’s point, it’s not just like rolling up technology, and saying, “Mission accomplished,” but it’s falling through half these checkpoints, to make sure that everyone understands.

Jonathan Broch:

Awesome. Thank you, Keary. Jaime, love to go to you next.

Jaime Hildreth:

Great. I would say, once you have the sponsorship really challenging yourself to get to the “So what?” So moving away from it just being data collection, to risk management, and ultimately, decision making.

Jonathan Broch:

Awesome. Nataliya?

Nataliya Kuzhylina:

Yeah, so I have a couple. First of all, you have to understand what you’re trying to achieve. I’ve seen so many times in my career that the firm would start a project without having the end goal in mind.

And in a case of valuation, just try to understand, what is your key issue? Are you trying to streamline data collection? Are you trying to automate valuation method? Do you want to use one template, instead of asking every portfolio company to use their own?

So it will all determine the software that you are going to use, and your solution reel and process, at the end of the day. Then second, I would say, don’t be afraid to use new technology, even if nobody else is using it.

Being a pioneer, it can be a risky business, but it can also be an enormous benefit. For example, again, coming back to valuation software, data collection software, there are old players and there are new players, and new players are so much more superior.

Yeah, but then, the last point say that in many cases, these projects are initiated by business and not by technology. Again, technology may not know business well, and may not understand the issues.

And when business initiates this project, they may not have enough experience on how to implement the technology. So I think over here, my advice would be to use the trusted partner who can help you to navigate market space, find a solution that is right for you, partner that has a lot of experience in this space, and done it many times before. That’s all I could say.

Jonathan Broch:

Excellent. Jazmin, don’t want to leave you out.

Jazmin Hogan:

Yeah. I mean, I would second when everyone else is saying, but I would also add that we should stay flexible. I think a lot of what you see is, you may think that there isn’t a solution for you, but the new solutions that are out there are much more flexible.

I think one of the huge challenges, which we actually just discussed with valuation, is just keeping things open, not being shoehorned into a specific way, or very rigid way of calculating your end value. And making sure that you have a solution that can be flexible enough to get you back to where you need to be, to make sure that your investment teams are comfortable, the valuation committee is comfortable and obviously, your auditors are comfortable, is really key.

Even within those technologies, we all think of this like older model, where you are an investor, and you have huge stakes in a company, so you can sort of dictate the reporting. You can tell them, but not everyone, has the same ability to fill out a template, for example. So looking at other options, in order to get your deal teams out of the system.

I’m a big promoter of having centralized teams that are responsible for reporting analytics and valuation, and freeing up teams to actually invest in making sure that those roles are defined. I think that’s one of the biggest selling points for a lot of these systems, and these teams, is helping them to get away from the reporting and analytics part, so that they can do the actual investing part of their role. And that’s key.

Jonathan Broch:

What stands out to me about each of your responses is, it’s less of a question now, is there technology that offers this type of capability? And it’s more, how do you leverage it, how do you drive the change, how do you now execute, which is pretty exciting. Having been this industry 20 years, it’s really come a long way.

All right, let’s get to some questions. We’ve got a few that have come through the Q&A.

The first one is, “What requests are you seeing from LPs and regulators around valuations?” I’ll leave that open for whoever would like to jump in and take that.

Keary Parinis:

Sure. I think, on my end, seeing a lot of LPs ask more details around the investments, really, around the methodology, and some of the key inputs that are going in, to the valuation and any changes in methodology.

I think, as they get smarter, volumes requests are growing. I think that sure speaks to need of having a technology solution that can help.

Jaime Hildreth:

Yeah, I would just add, I think if you continue to see and ask for the components of value creation. So decomposing, how do you get to the unrealized realized gains, and I think, getting more sophisticated a around that? So breaking down, operating income, separate from multiple, but what’s the composition? So I think that’s one.

You’re certainly seeing more around ESG, broadly. So we’re getting more requests around diversity, how we are monitoring our portfolio companies. I think that’s a growing area, with not a lot of standards, as we all know. So that’s interesting.

And then, I think, just requests around, they want to understand your process, your procedures, your governance, I think is really important. It’s not good enough to just take the last transaction.

So I think, the importance of having a software you can toggle, you can triangulate, using different methodologies is really critical.

Jonathan Broch:

All right. We’ll go to the next question, which, I really like this one. I’ve heard this one myself, and would think this panel can provide a really interesting perspective on it is, “How big of a role do auditors and their openness to new technologies and workflows play in a buy-side shop deciding to adopt such technologies over using something like Excel?”

Jazmin Hogan:

I’ll start. I actually don’t think that they are playing a huge role at the moment. I think, from an audit perspective, auditor, do want to see that. I think they prefer, obviously, a technology to Excel, because it minimizes the risk of fat fingering, et cetera.

We have built our technology with a team, that, “We’re all X valuation advisors.” So we’ve really thought about the audit process, how you get your results out, what your benchmarks are, how certain comps have moved, how your free rate, whatever, has changed, tracking those sort of movements.

I think, if you can present them a package that says “Here,” and your technology has already done the work of doing the comparison, doing the benchmarking for you, and all you’ve done is said, “We see these changes have happened. Here’s the commentary on why those things are. And here, oh, and by the way, you can trace back to wherever these numbers came from.”

I think that’s helpful for them in their role, but whether they’re driving that decision, I don’t think so. I feel like it’s more, they’re super benefiting from the fact that you’re in a technology now. I think it benefits everyone, right?

Because now, it’s like a lot of the checks are happening automatically. It’s like, well, “Here’s where we’re getting our rates, here’s where we’re getting our costs. Here’s where, and all of it is systematized, and the rollover is repeatable.” All of that stuff helps in them therefore getting comfortable with how you describe the value of these deals.

They could see, again, it’s back to the transparency. The technology helps with all of that, but I wouldn’t say that they’re exactly driving the adoption, or anything like that.

I don’t know. Curious to hear what you guys think.

Nataliya Kuzhylina:

I think that they don’t drive it yet, but considering that even asset managers becoming subject of regulations, more intense regulations, and I think, audit, internal, external audit will be more involved in how the valuation is done.

I think any process, not just valuation within the firm, will have to be thought from that perspective right now. And then, if you think about what’s important for an audit is, how do we manage JRC, right? Like governance, risk and controls.

Obviously, if you are using Excel, there is no problem, well, you can still govern from those spreadsheets, but the level of governance of the data bit in spreadsheets versus, is in the system, is completely different animal.

If you look at the risk, also, there is obviously always risk of mistyping copy or pasting something wrong into Excel. And it’s very difficult, it’s not impossible, but it’s very difficult to put the controls in Excel spreadsheets.

Right now, software allows you to put various controls over every single data element, so that’s no-brainer being here. To me, even if today, maybe we are not the subject of heavy regulations, but I think it’s definitely going that way.

If you are a public company, you also have to have all SaaS controls in place, then you cannot have them on Excel. I mean, you cannot have the proper controls, proper level of controls, in a sense. So I think it’s super important to have technology.

Jaime Hildreth:

I was just going to add, look, I think that the auditors can be your advocate. So as you are building a case for the need for technology, and getting that support from your executive, I do think that they can play a big role there, in being the advocate.,

There’s real benefits, definitely, to the auditors, but also, potentially in reducing audit fees, and reducing costs, and the efficiency gains. So I think they are a big advocate for the technology.

Keary Parinis:

Yeah. I was going to make a similar point, just to elaborate here. And I imagine the auditors, when they’re reviewing the models, they don’t have to review the model every single time, right?

You got the software in place that’s, for example, “I’m looking at this kind of cash flow analysis, or continued claims analysis.” The auditor can review the technology, make sure it’s computing the right number, but they’re not having to go in and review an Excel model every single quarter, every single year.

I think that’ll be a huge efficiency benefit, just really testing the controls, versus testing every single one, and any of the mechanics in any methodology into the model.

Jonathan Broch:

Excellent. Great, great perspectives from everyone on the question. And we are just about at time.

As we start to wrap up our webinar for today, for those of you that have put questions in, we didn’t get to them, we’ll make sure to follow up with you afterward. But again, a lot of great insights from our panelists today.

Jazmin, I’d like to direct our final question here to you. You’ve spent a significant portion of your career working at top tier private equity firms. You’re now on the other side, you’re delivering technology solutions to the market.

What is it that you’re most excited about? And where do you see the most opportunity to create value in a PE firm’s operations?

Jazmin Hogan:

Right. I mean, great question, Jonathan. I’m most excited about just this increased role of technology in this market, right?

We started the conversation talking about 10 years ago, when almost everyone was in Excel. I think there are fewer people that are in Excel, but there’s still a lot of change that can happen, especially with valuations.

I’d say a lot of people are now doing data collection in systems, but in valuation, we’re still very much in Excel. Here at 73Strings, we’re using all sorts of new technology, right? We’re using AI, we’re using machine learning in very innovative ways, everything from how you ingest data, taking it in from a PDF, Excel, where you can’t force people into a template, or it’s just more convenient to do it that way.

Everything from that, to using predictive analytics to determine what your comp set is. I think our systems are really thoughtfully designed and super intelligent.

I think that brings me to the second part of your question, around value creation, right? I think the real value creation, for those of us in this row, and it’s part of what Jamie touched on earlier, was being able to get away from just collecting data, doing the grunt work in Excel, and really being able to provide analytics around your portfolio, or your portfolio companies, and how they’re performing.

I think that’s where we all need to be. And then, going further, in terms of driving decision making, and you need the right technology behind that. I’m excited to see people using things, technology for things like ESG, all of that, there’s a ton that’s out there.

I think there’s a lot of data that can be harnessed if you have the right tool, and potentially being in a system, 10 years old, where you’re making adjustments, either in Excel or incremental adjustments along the way, isn’t really going to get you there.

We’re thinking about the way that we will work in the future, which is being able to do the analytics, being able to have all of these different parties inside the same system, and really benefiting from it. So I think, when you’re looking towards the future, you really need to have the right technology.

And shameless plug, 73Strings is it, but that’s really where we are is, we all are trying to move towards the future, and into the future of work, in these particular roles. And in order to get there, we all need to get on board with some new technology.

Jonathan Broch:

Awesome. Well, thank you, Jazmin. As we wrap up, just like to take a moment to thank each of our panelists for their contribution to today’s discussion, and also, to our audience.

We’d like to thank you for spending the better part of an hour with us today. We’ll follow up with access to the recording, in case you had to step out at any point.

But thank you, everyone, and have a great rest of your day.

 

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Jonathan Broch
Executive Director, Private Markets Advisory

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