We are proudly sponsoring PERE America Conference in New York taking place on November 15 and 16. Come visit us at our booth and meet Lizzie Heil, Ned Siegel, and Stephanie Golden.
Reach out today to connect with our team!
Conference
PERE America
Key contacts
Lizzie Heil
North America
Managing Director, North America
Stephanie Golden
United States
Managing Director, Sales, North America
Ned Siegel
United States
Managing Director, Sales and Relationship Management, Private Equity
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Analysis
AI & Alternatives case study: Consolidating files into a NAV dashboard
We at Alter Domus are regularly approached by our key clients to help them solve some unique business challenges. As both our expertise and investment technology have grown significantly, we have increasingly begun to utilize artificial intelligence as a central mechanism to find and deliver solutions to our clients. This is the first in a series of case studies designed to highlight the multiple ways we are creating impactful, customer-centric technology for alternative markets.
The challenge
Getting a clear picture of your net asset value, or “NAV” as it’s known, is a crucial calculation for every investment company. Essentially, a company’s NAV is its total assets minus its total liabilities, and as the number of funds and assets accumulate, the task of calculating this becomes ever more arduous – especially when using legacy tools such as Excel. We were approached by one of our key clients to see if we could create a solution to this labor-intensive task.
Their team faced the challenge of having to manually consolidate up to 11 Excel files to create one final NAV dashboard for each of their funds. What is of course crucial is that as the volume of data and manual work increases, the greater the possibility for data inaccuracies and calculation errors. On average, this entire process took days for their team to complete.
The solution
To address this challenge, the team proposed and designed a solution that involves the user uploading the 11 Excel files, including trial balances, bank balances, and FX rates, into a tool that consolidates them into a single NAV dashboard. Once the consolidation is complete, the user receives an email containing the new dashboard.
How the process and AI bot works (per each fund)
STEP 1:
- Alter Domus team logs into the Web Apps Portal and runs our NAV tool
STEP 2:
Alter Domus team uploads the 11 Excel sheets received from client, including:
- Trail balance, bank balance, collateral abacus & eFront
- FX rates, loan & credit facilities, accruals listing
- Loan request, ICAS previous & current period, hedging
STEP 3:
- Bot opens each Excel sheet. It copies and pastes, and completes lookups from the column data in the various spreadsheets
- Bot cleans data where required
STEP 4:
- Significant reduction of the time and effort required by client’s team to complete this task: what once took days now takes minutes
- Enhanced data and calculation accuracy
- Client’s team is freed up to focus on less manually intensive, more strategic tasks
- The bot is able to handle increasing volumes of this work, eliminating the need for the client to hire additional staff or reallocate internal resources
Implementation time
- 2 months to develop the bot
- 1 month in UAT
- 1 month in control production
Contact us today to find out how you, too, could benefit from our use of artificial intelligence in delivering impactful technology solutions.
Key contacts
Davendra Patel
Europe
Head of AI & Automation
News
Returns from SuperReturn: fund domicile decisions, regulatory uncertainty, and the driving hand of technology
The dust has settled on SuperReturn, the conference at which the world’s leading asset managers, investors and fund administrators gather annually to opine on the state of the industry. Now back from both hosting and attending panel sessions and giving keynote speeches in Amsterdam, Alter Domus leading lights Bruno Bagnouls, Patrick McCullagh and Tim Trott outlined some of the key themes and discussion points from the event in an Alter Domus roundtable interview.
Bruno Bagnouls: Gentlemen, that was an intense three days of debate and discussion at SuperReturn and alternative markets seem set for an interesting ride in 2024. Tim, let’s start with you. Here at Alter Domus it’s vital that, as a leading fund administrator, we keep a watchful eye on what’s happening on the regulatory front. You attended one of the lead sessions on this topic – what were your big takeaways?
Tim Trott: Well, we live in a time of constantly shifting sands on the regulatory front, and there were several issues that are generating some market apprehension and uncertainty. Firstly, Article 8 of the Sustainable Finance Regulation Disclosure mandate. Now, Article 8 refers to funds promoting environmental and social objectives which take more into account than just sustainability risks as required by Article 6. However, part of the issue is that Article 8 funds don’t have ESG objectives or core objectives. And there is market concern that this lack of backbone to the regulation and with SFDR could lead to what’s referred to as greenwashing on top of generating extra costs for that fund.
Secondly, on the challenging acronyms front, the incoming Alternative Investment Fund Managers Directive 2 was discussed as you’d expect. Otherwise known as AIFMD II, it was highlighted how AIFMD II’s control of cross-border marketing for funds is squeezing mid-market managers out of Europe, disincentivizing new players and, at the very least, increasing the administrative burden for market participants.
Bruno: Broadly speaking, Tim, ESG considerations do look set to become an ever more intrinsic part of raising, investing, and administering capital as time moves on. Moving on, Patrick, we listened in to the rather lively panel session on choosing a home to domicile your fund – what were the main insights?
Patrick McCullagh: This is, quite understandably, always a hot-button topic in the industry, Bruno. To stretch the metaphor, whether your fund is a bungalow or a palace, where you lay the foundations can make a huge difference. Key points to note were that from a jurisdictional perspective, Luxembourg remains an incredibly attractive EU option, not only for tax reasons, but because it has the largest cross-border funds distribution. It does also seem that Brexit has been somewhat of a boon for Lux, with more fund business migrating there. On the downside, issues were raised around appropriate infrastructure investment regarding banks and law firms, with Guernsey being flagged as comparatively better equipped in this area. Elsewhere in Europe, Switzerland was highlighted as a challenging place to domicile.
Beyond the EU, we have all of course been following the fall-out from the ‘black-listing’ of the Caymans, and how this has also pushed some US players towards Lux. That said, the panel outlined that for most, the risks associated with the Caymans are acceptable. Investors are still comfortable with the familiar and see the black-listing as likely to be short-term. There are also a lot of investment strategies that involve certain risk thresholds in industry or jurisdictions, especially emerging markets where other well documented risks make it almost irrelevant.
Bruno: And of course, many of these issues highlight just why it’s important to have fund administrators that have both local and cross jurisdictional expertise. Sticking with funds, Tim, day two of SuperReturn kicked off a look at fundraising trends. What was the general sentiment?
Tim: There are some clear challenges in this area, Bruno. While Covid was obviously terrible for the planet at large, fundraising was generally easier in that period. In this current period, fundraising is taking a lot longer, partly I’m sure because of the ongoing uncertainty that high interest rates and inflation caused. However, funds are both getting bigger generally with fewer smaller players entering the market. No matter their complexity, investors certainly aren’t being turned away at the door as that need for capital is swelling.
Patrick: Just to add to more weight to Tim’s point there, I attended a session on the evolving role of CFOs and it was acknowledged that fundraising would continue to be trickier for the foreseeable future.
Tim: Industry data and insights company Preqin also hosted an outlook session on alternative markets and they forecast growth to slow globally in terms of assets under management, as well as highlighting an apparent disconnect between fund targets and actual funds. It’ll be interesting to see what happens when shifts start occurring at the macro-economic level.
Shifting from fundraising to existing funds, one other point that jumped out at me at the CFO session was the comment that the implementation of IT and digitalization in general being much harder for larger or more vintage funds.
Bruno: Tim, that’s a nice segue into the fact that Patrick hosted a ‘Let’s talk tech’ panel at the event. Investment in and use of technology seems to be in everyone’s minds and plans right now.
Patrick: 100% right, Bruno. I’d say that we really are now at the beginning of what we at Alter Domus would call the third generation of fund operations, with technology coming to fore. Automation, AI and machine learning are certainly going to have a somewhat seismic impact on the industry, as will the end-to-end digitization of workflows.
From a back-office perspective, it doesn’t matter if it’s data collection, data processing, or data distribution, the days of throwing ever larger number of bodies at a problem – and using blunt, legacy tools like Excel – are going the way of the Dodo. It always comes back to a question of scale: the ability to grow your business, grow the number of funds and accurately administer that fund, monitor that fund’s performance, and derive investment insight from that fund data is increasingly going to come down to the smart integration and application of best-in-class technologies. Everyone on my panel agreed that standardized, comparable, accurate data that can be swiftly deployed downstream to the analytical arms of a business is vital.
Tim: Of course, the other factor driving this is the increasing demands of investors. Their reporting demands are growing, as is their need to understand the infrastructure of an asset management house being the third parties that they engage with and technology solutions used throughout the structure before they consider partnering.
Patrick: Absolutely. And this is also where administrators like Alter Domus are taking a leading role in the development of new technologies for fund administration, data extraction, portfolio monitoring and beyond. This helps insulate managers from steep tech development costs, risks, the time to market needed to do it themselves, or to retro fit new technology to ‘legacy’ operations. The future really is now.
Key contacts
Bruno Bagnouls
Luxembourg
Director, Alliances and Partnerships EMEA
Patrick McCullagh
United Kingdom
Managing Director, Sales, Europe & United States
Tim Trott
United Kingdom
Director – Head of Corporate Services – United Kingdom
News
Keeping the lifeblood of capital flowing: the undervalued role of the secondaries market
Amid the rise of alternative assets over the last two decades, the number of investment opportunities available to both limited partners and general partners has grown. One such vehicle – the secondaries market – is attracting increasing amounts of attention and fundraising.
Tim Toska
Group Sector Head, Private Equity
Secondaries in the spotlight
Fundraising for the secondaries market – where investors purchase securities or assets from other investors rather than directly themselves – has finally bounced back after steep falls from the highs experienced during covid-stricken 2020, with H1 2023 showing a 28% year on year jump. Indeed, the broadsheet financial media has been awash with reports of large players raising billions specifically for allocation to secondaries, with the pervading sense from market players that it’s been both undercapitalized and, to a degree, an undervalued part the alternatives eco-system.
While the actual volume of transaction for secondaries didn’t meet expectations in H1, market commentators seem to believe an incredibly robust H2 will make up for any shortfall. What’s clear is that the market has matured and grown in terms of sophistication with players on both sides of the equation using ever more sophisticated asset performance and sectoral data to guide their investment strategies.
Liquidity and economic uncertainty are the key drivers
As the saying goes, not all heroes wear capes, and in a period where liquidity has been increasingly scarce, the secondaries market has been a lever that both GPs and LPs can turn to and pull. If capital is the lifeblood of a financial system, then secondaries can be seen as an essential safety valve that allows that capital to keep flowing through the arteries, meeting investors need for liquidity.
What’s also helping secondaries seize the moment is the ongoing sense of uncertainty still gripping major economic markets. Investors seem either cautiously optimistic or cautious with regards to optimism as they wait to see whether interest rates and inflation will begin to properly descend. On the private equity front, this ever-present uncertainty – the bête noir of deals – has kept the under-performance of 2022 rolling deep into 2023: reigned in investments, blocked exists, and stymied fundraising for many traditional PE transactions abound. The safety valve of secondaries therefore becomes ever more appealing.
The LP advantages
For limited partners, there are two clear ways to take advantage of turning to secondaries; firstly, if there’s a need to re-up for the next investment cycle and reshape their portfolio, then offloading that asset at the right pricing floor becomes an attractive prospect. Secondly, for limited partners on the buy side looking to find quality businesses or assets at a sometimes heavily discounted price on the dollar, there are great deals to be had. Of course, there’s a tango that takes place between buyer and seller and there were times post-2020 where there was no great alignment on price or valuation of assets, hence the slowdown in-deal activity. As things stand in H2 2023, deal flows are good, discounts deep and buyers and sellers are making matches.
On the private equity front, the last 12 months has seen the expansion of secondaries funds aimed squarely at the middle market, with an ever more diverse sectoral selection of well-positioned companies becoming available. Of course, middle market companies have a lot more room to grow both operationally and in terms of scale, and often benefit hugely from PE firms’ capital injections and M&A expertise. The feeling among many investors is that there are bargains to be had in this space, and sellers seem more willing in this illiquid moment in time to adjust their valuations to get deals over the line.
GP-led secondaries have changed market dynamics
Looking at the history of secondaries, there is another key development it would be remiss not to highlight. If first period of the market was defined by limited partners led deals, then the second (let’s call it ‘post-Covid’) has been defined by the rise of GP-led transactions. Historically many GPs have often found themselves facing what you could term a ‘capital conundrum’ – on the one hand the need get a return on an asset as the clock ticks down on a fund, on the other often knowing they may be selling that asset before its value has been maximized.
Enter, stage left: GP-led secondaries
The asset – often held in a vintage fund nearing expiration – is sold into a continuation fund which enables GPs to keep control of their asset, attract investment from new limited partners, and pay out their original fund investors. Holding on to high quality assets for an extended period can help GP’s ensure they extract every bit of value created by their work and effort. It also offers the original investor optionality; an escape hatch if the investor is looking for distributions in order to re-invest or re-allocate their capital due to internal or external economic factors, or the opportunity to roll their capital into the continuation fund and share on the potential upside, often at more enticing economic terms than the original fund vehicle.
The outlook
With momentum building in the secondaries space and greater supply coming on-line, it’ll be fascinating to see where both fundraising and transaction volumes finish in 2023. It’s worth remembering that these are complex financial vehicles; having the right support for the operational process of administering a secondaries fund and the right tools in terms of data capture, delivery and monitoring is essential.
Looking at the horizon there are three factors that might have both short and long-term effects on Secondaries.
- The potential impact in the US of the SEC’s Private Fund Reform Rule around Adviser-led secondaries and the requirement to obtain a fairness or valuation opinion from an independent party
- The speed at which private equity players embrace AI and Automation to enhance the deal making decisions
- To what extent the rise of NAV / Borrowing Base loans will eat into secondaries allocations
We’ll of course be opining on these factors in the months ahead, but, for now, in the ongoing race of financial performance, coming secondary seem to have its advantages.
Key contacts
Tim Toska
United States
Global Sector Head, Private Equity
News
A game-changer for fund managers and Alter Domus: The benefits of AI and machine learning
Artificial intelligence and machine learning have the potential to be game changers for private credit and fund administrators. Alter Domus’ Head of Automation and AI, Davendra Patel told PDI’s “Future of Private Debt” report, boosting everything from deal sourcing to ESG reporting.
Although early adopters are seeing the benefits of integrating artificial intelligence and machine learning into their fund management workflows, the game-changing potential of the tools remains largely untapped in private credit — but probably not for long, according to experts who spoke recently with PDI for their recently published “Future of Private Debt” report.
The group included Davendra Patel, Head of Automation and AI at Alter Domus.
The sector is gradually embracing AI and machine learning for good reason: the technology can help with investment strategy and back- and middle-office functions alike, everything from deal sourcing and due diligence to investor and ESG reporting.
One of AI’s strengths is its ability to discern patterns from thousands of data points, and to do it in a fraction of the time it would take a team of people to do it, and without the risk of human bias. Of course, it takes human judgment to draw a final, well-considered decision out of the data, but AI can improve the confidence around it.
Alter Domus spent four years creating its own AI systems, including a proprietary version of ChatGPT. According to Patel, the company’s in-house capabilities, which have been deployed across Alter Domus’ entire business, help clients simplify and automate complex processes.
Among other things, Alter Domus automation reads emails, removes attachments, and automatically classifies, extracts, and summarizes the information. Clients have access to real time insights — something investors have been clamoring for. What’s more, Alter Domus’ proprietary tools mitigate the security risks often associated with off-the-shelf digital solutions.
Key contact
Davendra Patel
Europe
Head of AI & Automation
News
Managing security risks allows fund executives to take advantage of AI opportunities
Considering the transformational possibilities of artificial intelligence on fund operations —the right applications can do everything from reduce costs to help generate new revenue — it may come as a surprise that only 14% of fund executives surveyed by information service Private Funds CFO have implemented AI technology into their portfolio companies. Perhaps more startling is that more than half of respondents said they had no plans to adopt AI in the next year.
For Alter Domus Head of AI and Automation Davendra Patel, that looks like a missed opportunity, especially with areas such as risk management, due diligence, and performance tracking ripe for AI integration.
In a recent interview with Private Funds CFO, Patel said that in the current economic climate, AI is a pivotal tool for gaining a competitive advantage. That’s a view his own company has taken to heart: Alter Domus has created its own versions of ChatGPT and integrated generative AI to automate data from various sources, providing real-time information and insights to clients.
Patel, who has 30 years of experience in IT, acknowledges the potential security risks around AI, including the threat of shared information becoming leaked information. By developing proprietary tools, Alter Domus has optimized data safety. In addition, in-house experts continuously monitor the Alter Domus system for vulnerabilities and breaches.
“We focus on regular reviews, audits, and ethical considerations to ensure AI’s responsible and safe deployment,” Patel told Private Funds CFO.
“It’s essential to balance AI’s potential with practicality, focusing on both immediate gains and long-term benefits.”
Read the full article here.
Key contacts
Davendra Patel
Europe
Head of AI & Automation
News
Value-creating operations teams must be built on quality, not quantity
Steve Krieger explores emerging managers’ challenges when developing portfolio operations teams from scratch while simultaneously fundraising and sourcing deals.
Steve Krieger
Head of Key Client Partnerships
We understand that for first-time funds and emerging managers in particular, developing a portfolio operations team from scratch, while simultaneously fundraising, sourcing deals and facing into macro-economic headwinds, is a big challenge.
The latest ‘Operational Excellence’ report from PEI explores how businesses are meeting this challenge; including hiring experienced value-creation professionals, innovating around existing value-creation levers and using new technologies and finally working with the right partners to access specialist functional or industry expertise.
Steve Krieger, our Head of Key Client Partnerships, delves into the importance of quality over quantity and how working with the right partners can create a truly value-creating operations team from day one.
He contends that:
- Businesses need a handful of highly knowledgable and well-connected individuals in-house, who can build relationships and work well with management teams
- A small group of experienced individuals pulling their sleeves up and getting things done is far more valuable to companies than dozens of people that are giving out theoretical instructions
- There is a fine line between being helpful and being intrusive, so individuals working in portfolio operations need to have that sensitivity
- Ultimately it is not about being the person in the room that has the best idea but being the person with the best idea that actually gets done
Contact Steve to hear more about our operations expertise and you can access the broader PEI “Operational Excellence” report here.
Key contacts
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Conference
9th International Cyprus Funds Summit & Expo
We’re proudly sponsoring the 9th International Funds Summit & Expo in Cyprus on October 23 and 24.
The summit brings together investment fund professionals from around the world to discuss the evolving regulatory and increasingly competitive landscape in the global asset management sector and much more.
On Day 2, Evdokia will moderate the panel discussion “The Future of Funds Administration”, where experts will explore how the future of fund administration is posing unique regulatory challenges, especially in smaller jurisdictions.
Meet our team at our Alter Domus booth and discover how our solutions can meet your needs.
Key contacts
Evdokia Stavraki
Cyprus
Country Executive Cyprus
Georgios Michael
Cyprus
Head of Operations at Alter Domus Cyprus
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News
Traditional operating models are evolving, providing flexibility and speed
Speaking with Preqin as part of their Services Providers Report, Jessica Mead, Regional Executive, North America offers her perspective on the changing ways firms are looking to work with their administrators
Jessica Mead
Regional Executive, North America
What are some of the key considerations when identifying the right service operating model for your company?
Your operating model and managed services provider need to be able to accommodate your future growth plans. If you are considering moving into new jurisdictions, asset classes or strategies, they need to be able to flex accordingly to support that next step for your company. Crucially in today’s data-driven environment, you also want to think about your data and technology needs. Investors are demanding real-time access to information and transparency. Do you want to take on the cost and responsibility of building and maintaining the capability to provide that in-house? Many asset managers are engaged in M&A activity, which is a logical moment for a fundamental rethink of your operating model.
How is traditional outsourcing changing?
The need to access data is driving change – for the better in our view. We’re moving away from a commoditized and transactional type of model towards operationally integrated partnerships, where there’s transparency and access to data in real-time. We’re also seeing some consolidation and rationalization of partnerships. Where perhaps a manager might have had multiple fund administrator partnerships in the past, now they might have one or two deeply embedded partnerships that can cover all the jurisdictional and sector specialisms they need globally.
Co-sourcing is a relatively new concept. What is it and why might firms consider it?
Essentially, co-sourcing is an operating model where the manager maintains an in-house data and technology stack that their administrator has access to and can create and modify primary data elements. It’s a hybrid model between fully outsourced and fully insourced. The benefit it offers managers is that it allows total control and ownership of their data and real-time access to it, while tapping into the asset class and systems specialists, and talent acquisition capabilities of a fund administrator, all while reducing manager level overheads.
Beyond co-sourcing, in what circumstances might a full lift-out be the right solution for a company?
That partly depends on whether, as a manger, you have the scale and appetite to reinvest in your own technology and in-house operations or not. There are considerable advantages to partnering with a provider who constantly upgrades their technology platforms and can provide a long-term career path to valuable internal resources. There are also the economies of scale and best practices that a global administrator can offer, without being distracted by the challenges of maintaining a back office. We’ve seen great success for both clients and personnel as we’ve created a playbook to successfully assist with these types of full lift-out transitions.
With this evolution in mind, what should a company be looking for when choosing a service provider?
Ultimately a good administrator is focused on white-glove levels of service and forming a deep partnership with their clients, which will include customizable solutions and specific asset-class expertise that meets specific needs. An administrator should be viewed as a critical member of the team, who when leveraged correctly delivers significant value-add to portfolio, risk management, and investor teams. Critically, you need to have confidence that they are technologically innovative, as well as culturally a good fit for your organization.
This article was originally published in Preqin's Service Provider Report.
Key contacts
Jessica Mead
United States
Global Head, Private Credit
News
Mid-market GP-led secondaries heat up
As GP-led dealflow continues to outstrip available capital, there has been a flight to quality and a flight to the mid-market, say Tim Toska of Alter Domus and Brian Mooney of Portfolio Advisors
Tim Toska
Global Sector Head, Private Equity
How would you describe GP-led dealflow right now?
Tim Toska: Conversations with our clients around GP-led secondaries are becoming increasingly common. Sponsors are identifying high-performing companies where significant value-creation potential remains and are putting them in continuation vehicles. These deals have become a valid fourth option when it comes to exiting businesses.
Brian Mooney: Almost every major private equity firm has completed at least one continuation fund and many have completed several. We observe that firms that have yet to do so are working on one right now or considering their first. However, there is a massive supply/demand imbalance. While the demand side (buyside capital) is growing, it is not keeping pace with supply, particularly given that so many LPs are suffering from the denominator effect. That is impacting fundraising in all asset classes including secondaries.
As a result, GP-led deal volume is down on last year, but those transactions that are taking place involve the highest quality sponsors and the highest quality assets. I would also add that there has been a marked shift towards the mid-market. Very large single-asset or concentrated portfolio deals, meanwhile, are proving more challenging
What impact are those supply/demand dynamics having on pricing?
BM: Only 25 percent of all GP-led deals were priced at a discount to NAV in the first half of 2021. By the first half of 2022, that had increased to 50 percent, and I think that is still true today. We are also seeing more transactions with some kind of structuring involved in the purchase price. It could be a simple deferral or in some cases a portion of the purchase price is based on a contingency such as hitting a certain level of EBITDA at a given date.
How should sponsors prepare their assets and processes to maximize the chance of a GP-led deal completing?
TT: Transparency is paramount, and I think the GP-led secondaries market has benefited from enhanced transparency more broadly in the wake of the pandemic. Historically, there was criticism levelled against the asset class with regards to a lack of readily available information and stale information.
During the pandemic investors began to demand frequent data points and communication around specific companies, which forced managers to put the necessary infrastructure in place to deliver on that. That means that when a GP raises the prospect of a continuation vehicle with a particular asset today, the LP base is already well versed on how that company is faring and why a continuation vehicle might make sense.
BM: Sponsors today are communicating with their investors early and are focused on transparency, both with buyers and the existing LP base. In terms of preparing companies, it is all about finding the ideal candidate and having the right motivations.
What are secondaries buyers looking for in a GP-led deal in terms of alignment?
BM: At an absolute minimum, a GP needs to roll at least half of its capital. For us, as a buyer, the GP must be a net buyer or else the transaction is of no interest to us. We tend to become really interested, however, if the GP is proposing to roll all its capital, meaning the original investment plus carry crystalised through the sale to the continuation vehicle. A GP-led transaction becomes even more interesting if the GP wants to write an additional cheque, which could mean a commitment from its new flagship fund.
Meanwhile, economic terms tend to be more favorable, with lower management fees and tiered carry, which serves to further enhance alignment.
What role can technology and data analytics play in supporting a GP-led process?
TT: With a GP-led process, as with so many areas of private equity, it is vital for sponsors to have a single source of truth in-house. Get your data systems in place and then you can overlay that with market insight to help identify the perfect candidate for a continuation vehicle. Investors are also relying on data analytics to evaluate manager performance. But I would add that data analytics is fundamentally about taking the robot out of the person. It takes away all the laborious legwork and enables teams to bring a new and more valuable set of skills to the table.
BM: Underwriting a continuation vehicle is a very intensive process. You need to underwrite the sector and the company, but you also need to underwrite the sponsor. You need to evaluate how that sponsor has added value to that business and whether that is consistent with the strategy being proposed for the continuation fund. All of that involves pattern recognition and, if you have the data and analytical tools to gain that insight, you can better assess the risk/return profile of the deal.
What other areas of private equity do you see as ripe for tech disruption in the future?
TT: I see the real value of technology as supporting due diligence at the front end of a transaction. I also believe that automation can help streamline processes, making data requests that might previously have taken days almost instantaneous. Meanwhile, the more standardised that data becomes, the more easily it can be integrated into investors’ systems as well.
BM: I think data analytics will play an increasingly important role in LP secondaries, where you are often building portfolios with hundreds of fund interests and thousands of underlying companies. Technology can help make that market much more efficient and support our ability, as buyers, to submit offers more quickly, while also informing our portfolio construction around underlying risk and return drivers.
I agree with Tim that technology in this asset class is about taking the robot out of the person. This is still a people business. As investors, we are betting on the teams that we believe are the smartest and best at what they do.
This article was originally published in PEI’s US Mid-Market Report.
Key contacts
Tim Toska
United States
Global Sector Head, Private Equity