In a webinar hosted by Real Deals and IQ-EQ last month, a panel of experts (including IQ-EQ’s Justin Partington and Hugh Stacey) discussed how the use of technology in private equity has evolved and whether the COVID-19 crisis will mark a long-term shift in the way the firms operate.
Private equity as an industry has always relied heavily on networking, relationships and in-person contact. But with travel restrictions, physical distancing measures and full lockdowns in place across the globe, managers and investors have had to turn to technology – in particular video and teleconferencing – to maintain relationships and complete processes launched before the pandemic took hold.
However, as Justin Partington commented during the session, “technology is not quite enough to replace the building of relationships for the first time.” Without that initial personal contact, new deals, bolt-on acquisitions and fundraisings have been struggling to get off the ground. One option is starting smaller with a cornerstone investment from previous relationships and expanding once the situation stabilises, though that may mean a considerable extension of the timeframe before final close. Justin also noted the emergence of more creative tech-led solutions like virtual investor intros that are helping facilitate introductions.
Also discussed during the webinar was how organisations have responded to COVID-19 operationally. Hugh Stacey observed that the pandemic has served to accelerate fund managers towards proactively using technology to improve the quality and frequency of investor communication and reporting. Some have taken this a step further by opening up their internal reporting platforms to their investors.
Other key discussion points included the importance of understanding the risks involved in turning quickly to technology – namely cybersecurity – and the fact that, although there is great potential for GPs to use technology for front office functions like origination or deal execution, there is still a lot of progress to be made. The crisis may have forced teams to change how they operate, but firms can’t expect to leverage AI, data analytics and machine learning without first streamlining workflows and document management processes.