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Why culture is emerging as a game-changer in the private equity data puzzle
Fri, 1st Mar 2024

The volume and diversity of available data for alternative assets is expanding rapidly, offering managers a wealth of information to inform investment decisions and optimise operations. For general partners (GPs), ensuring transparency, quality, and easy access to data has never been more critical.

Yet the sheer volume of material poses a significant challenge for private equity firms. Many find themselves struggling to consolidate large volumes of data from disparate, siloed sources—a mammoth challenge facing the sector.

By 2027, it is anticipated that 55% of all global asset management revenues will come from alternative assets. Despite enduring market volatility, the demand for alternative investments has steadily risen over the past decade. Investment in alternatives is expected to continue growing as asset owners diversify holdings, hedge against inflation, and seek alpha through private market investments.

In the current environment of uncertainty driven by increasing debt costs, market volatility, and inflationary pressures, the search for stable returns and alpha/growth is more demanding than ever. This challenging landscape compels alternative investment managers (AIMs) to maximise the use of their assets, capabilities, and intellectual property, with data emerging as a crucial pain point.

Data as the oxygen of the organisation
Data is likened to the oxygen of an organisation—a strategic corporate asset used to generate information, providing the knowledge to create insights that drive decisions. For this to be effective, primary data must be ‘healthy’: characterised by correctness, consistency, accessibility, and ease of understanding across the organisation. Without these qualities, data fails to add value to analysis and investment decision-making processes, hindering both internal and external stakeholders.

Both GPs and limited partners (LPs) handle massive amounts of data, including structured and unstructured, externally sourced and internally generated. Operating with a patchwork of spreadsheets, emails, and files—often from multiple investment funds and companies—results in highly diverse and complex data networks for most private equity firms. This complexity adds a significant administrative burden on fund managers, diverting resources away from revenue-generating activities.

Meeting rising data demands
Fund managers must rethink how they manage data due to increasing pressure to meet the rising demand for information, not only internally but also from investors.

The solution to this challenge involves investing money and time in overhauling outdated legacy infrastructure to establish a comprehensive data management approach. While technology solutions can minimise manual efforts and free up staff time, they are not a blanket solution. If individuals continue to retain their data on personal computers and documents without integrating it into enterprise data systems, investments in technology become redundant.

Trust in data: the chicken or the egg?
When seeking solutions to the data management dilemma, organisational culture, mindset, and behaviour are as crucial as technology. Overcoming data management challenges begins with establishing trust in data amongst those handling it. This presents a chicken-and-egg scenario. If people do not trust enterprise data, they create their own data silos using personal Excel spreadsheets as they always have. This perpetuates a situation where enterprise data is incomplete or unverified, further fuelling distrust.

The escalating volume of data raises concerns about declining accuracy and quality. Fund managers grapple with vast volumes that are challenging to analyse and process. Manual processes and siloed data contribute significantly to this issue, making it difficult to produce consistent and quality data in a timely manner. Siloed data also poses serious regulatory compliance risks and opens the door to the misuse of sensitive data.

Coupled with this challenge is the increasing emphasis on the investor experience in terms of data access. Clients are reaching out to GPs for more information on funds, wanting additional details such as ESG data reporting and more up-to-date information on a more frequent basis. The complexity of reporting often results in poor fulfilment rates when investors request data from companies, particularly smaller ones that may struggle to respond meaningfully.

Transparency is identified as a critical element in building trust in data. Alongside technology investment, a cultural shift is required to change the behaviours of those who have “always done it that way”. However, an organisational mindset shift is easier said than done. Establishing and following comprehensive data management and governance processes ensures that all data is captured in the required repository, enabling easy access to information and improving transparency.

An effective data management approach is a two-way street—with trust at its core. While technology investment is a major part of this, clean, accurate, and trusted data feeding into a central repository can significantly impact organisational efficiency. With faster access to information, GPs can quickly and easily respond to ad hoc client requests for data, generate insights, and improve decision-making.

However, mindset, organisational culture, and behaviour are equally important in establishing trust. Executive leadership buy-in is crucial in driving cultural and behavioural change.

Business users such as investment and investor relations professionals must own the data that they produce and consume, knowing that data issue is not a technology issue and that they themselves must ensure accuracy and consistency in the data they are responsible for. Every employee must buy into the importance of good data governance to minimise the risk of solo working and the creation of new siloed data sources. By ensuring all staff are on the same page, firms can be confident that any new technology investment will not go to waste.