The state of digital adoption in Africa’s private equity landscape

The pressing demand for digital adoption is driving an important shift in Africa’s private equity market.

In IQ-EQ’s latest state of digital adoption report, released in partnership with The Drawdown in May 2024, 30 c-suite professionals representing firms managing more than $1 billion in assets under management were surveyed. It was found that most private equity firms worldwide still rely primarily on manual technology. It’s surprising to learn that 82% of the businesses surveyed still operate using manual tools such as spreadsheets. This resulting ‘digital gap’ across the private equity market led to a marked difference between what investors expect and what GPs are currently delivering. Adherence to outdated techniques is causing inefficiencies and making it more difficult for businesses to obtain or analyse data fast enough for reporting or investment decisions.

However, the benefits that cutting-edge technology may offer the private equity industry are widely acknowledged in the report. Nearly all (96%) of the firms surveyed believe that technology is a major lever for creating value, and 93% said that one of their top three company priorities for the next 12 to 24 months is technological transformation, suggesting that technology adoption in PE firms is set to spike over the coming year.

Importance of technology adoption

Despite the heavy reliance on legacy systems and processes, our research showed that private equity firms recognise the need to switch from old systems to more advanced digital platforms and how the right technology can bring value throughout the investment lifestyle. According to PwC’s Technology Perspective 2023 report on how CEOs in Africa perceive the threats and opportunities presented by new technology adoption, 87% of CEOs in the financial services sector have noted a significant technology disruption to their business models compared to the 50% globally. The PwC survey also acknowledged that the rapid shift in technology adoption, which started during the COVID-19 pandemic, forced organisations to invest in digital capabilities and client-facing assets, highlighting the importance of data and the shift to cloud. Business leaders in Africa today are acknowledging the importance of catching up with other countries in the technology race.

But this shift in terms of digital adoption is about more than just keeping up with technology; it’s also about increasing operational effectiveness, boosting data quality, and making wiser investment choices. More than 60% of firms surveyed already use in-house data platforms, citing advantages like reduced turnaround times (82%), better data quality (76%), and faster information provision (64%), amongst other benefits.

These improvements are especially important for Africa. The continent’s private equity sector is quickly expanding, necessitating the development of more efficient and scalable infrastructure. For example, investing in data warehouses has become a high priority, with 46% of businesses surveyed having or currently implementing an in-house data warehouse. This approach intends to unify data from diverse platforms and business units, allowing for predictive analysis and better decision-making.

Removing the implementation headache

When we spoke to the firms about their technology adoption priorities, three focus areas caught our attention, and these are: onboarding, compliance and data platforms.

Indeed, 36% of firms surveyed are looking to streamline their onboarding process and reduce the reliance on manual processes such as emails, spreadsheets, or portals with basic functionality.

Furthermore, 76% of respondents expressed an increased demand for technology solutions to streamline compliance procedures. In terms of data platforms, 60% of respondents are already using an in-house platform within their organisation and more than three-quarters of those firms (76%) are today considering outsourcing this to a service provider or investing in a technology platform.

The path forward

Our survey results highlight the significant progress that private equity firms have made in adopting digital technologies, but acknowledge that there’s still work to be done. Our key takeaway from this latest survey is that as the private equity landscape continues to evolve, firms must prioritise digital transformation to stay competitive and meet the rising expectations of investors.

For firms in Africa, this means investing in advanced data management systems, embracing innovative financial products, and leveraging the latest technologies to enhance operational efficiencies. By doing so, they can position themselves as leaders in the industry and attract more investment to the continent.

Conclusion

The state of digital adoption in Africa’s private equity is at a pivotal moment. While significant progress has been made, there’s a clear need for continued investment in technology to drive efficiencies and improve decision-making. With the right tools and support, private equity firms in Africa can harness the power of digital transformation to achieve their full potential.

Our approach at IQ-EQ is that there’s no one-size-fits-all data strategy for digital adoption. By leveraging our extensive expertise and our innovative solutions, firms can streamline their operations, enhance data security, and provide a superior experience for investors. As the industry moves forward, embracing digital adoption will be key to staying competitive and driving growth in the dynamic and rapidly evolving private equity landscape. Contact us today if you’re interested in learning more.

About the author

Pazani is IQ-EQ’s Chief Commercial Officer for Africa, India and the Middle East (AIME). As a seasoned professional, Pazani has nearly 20 years’ experience in the private equity and finance industry, specialising in fund administration, accounting, tax, compliance and business development. He’s a Fellow of the Association of Chartered Certified Accountants and a member of the Mauritius Institute of Professional Accountants and the Mauritius Institute of Directors.