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Podcast

The importance of technology in the current private equity landscape

13 May 2020

IQ-EQ hosted an exclusive webinar, in collaboration with Real Deals, on Tuesday 28 April 2020.

The topic of discussion was “The growing importance of technology in the current private equity landscape” with the panel moderated by Real Deals.

IQ-EQ’s Justin Partington and Hugh Stacey were joined by Barnaby Piggott from Holland Mountain, Neil Mehta from DWS and Rajen Shah from 17 Capital.

Listen to the IQ-EQ podcast on

Transcript

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Hello and welcome to the growing importance of technology in the current private equity landscape. A special webinar, a special webinar session hosted by IQ IQ and real deals. I'm your host this afternoon, Nicholas Netherland and thank you very much for dialing in. Private equity has always been an industry where you have to press the flesh if you are to be successful with a raising a fund or closing a buyer. It by art, relationships and personal contact matter. It is perhaps for these reasons that private equity hasn't always been the fastest to digitalize and automate, but as the asset class has globalized and indeed the covert 19 pandemic has placed restrictions on travel and personal interaction that has been unprecedented for the bike industry. The shift towards digitalization within private equity has accelerated introduced. In today's broadcast we are going to look into how the use of technology in private equity has evolved.

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Ask whether the covert 19 lockdown will Mark a longterm shift in how the asset class operates in the future and explore some of the practical considerations for managers who have had remote working suddenly thrust upon them and their teams. And so the answer, discuss these topics. I'm joined this afternoon by five guests. My first guest is IQ IQ is head of funds. Justin Partington. Justin leads his firm's global offering for alternative asset managers and has extensive experience in the operation delivery and marketing of fund and investment and investments administration. Good afternoon, Justin, lovely to speak to you this afternoon. Um, just a quick question to kick us off. Obviously we've all increasingly come to rely on digital services, video calls and the like through the lockdowns that have been introduced in response to covert 19. If we look at it strictly from an infrastructure point of view, is it in fact technically possible to raise and close a private equity fund working entirely remotely?

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Thanks. Uh, thanks Nicholas. It's um, it's obviously a good question. The current environment and I think we've seen our clients and others in the industry approaching the technology slightly, slightly differently. Um, w w w what we're finding is that, uh, our clients who are using say video conferencing and zoom calls, you know, like the rest of us, um, are using it to maintain relationships and to complete processes that they had started pre the covert covert 19 and pre lockdown. Uh, but what we are hearing is that where there are either new, uh, fundraisings or new deals for portfolio investment, that those really are not getting off the ground without that initial personal, in-person first contact. So it's, it's something our clients and are using technology to continue processes that were going on and to maintain relationships. Uh, but it's not quite enough to replace the sort of building of new relationships for the, for the first time.

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Uh, I think as a couple of practical implications. So where we've seen um, uh, either clients doing a follow on fundraising, a new side fund, it's less likely they're going to get that away without say, a large number of REApps from existing investors who they know and can maintain relationships with. So there's a prospect of using perhaps starting smaller with a cornerstone or two they might have had from previous relationships and then expand, uh, once the covert situation returns a bit more to normal. And that might mean perhaps instead of a 12 or 18 month period to final close, perhaps longer periods, we might start to see 24 to 36 months to final close to allow time to come out of the current situation and have a longer time to close first close. And I think the other thing I've mentioned is we're seeing some, some quite creative solutions in this area, including some virtual cap intro spaces where rather than say just a one day event, they're going to be sort of spread over a period of time whereby you create a sort of safe space or water cooler space virtually for, um, trying to simulate that at that cap introduction or connections which might today have more informally, um, in a, in a technology based, a solution to tell us a drop in and, and uh, I guess the virtual version of what used to be chat rooms to try and enable some of those conversations to keep going and start new ideas and new relationships.

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Justin, thank you very much, really interesting, um, setting of the scene as it were and I'm sure we'll, we'll come back to a lot of those themes again later in our discussion. Um, thank you Justin. Uh, my second guest is Neil meter, who is the CFO of the private equity business at asset manager DWS. Um, Neil runs the firm's finance and accounting function and works alongside the senior investment team to drive growth and shape financial best practice. Um, Neil of course was previously with Mayfair equity partners and also had a spell of key Haven capsule partners and he also sits on the BBCA regulatory, uh, committee. Um, great to have you with us this afternoon. Uh, Neil, um, I'd mentioned earlier in my intro how important personal interaction is in private markets. And again, Justin has, um, uh, alluded to how crucial that is, um, especially when when new relationships have been formed. Um, I just wanted to ask you how your organization has had to adjust in response to covert 19 and how technology has helped the business to, to keep the wheels turning as it were.

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Thanks very much Nicholas. Um, yes. Well, I think, you know, we, technology has been critical in keeping the wheels turning and we've all had to, um, you know, invoke business continuity procedures where, you know, I'm all of us on the panel today. You know, you know, we're all, we're all working from home where, you know, we're having to having to deal with sensitive information where we're looking at internet, internet based solutions for data sharing. There's been a number of number of different challenges, but you know, technology has been absolutely fundamental and we will move, you know, we will talk about, you know, some of the risks and concerns around these for certain of these areas. Um, for now keeping that personal interaction with, you know, be it, you know, management teams, you know, underlying GPS, LPs, prospective LPs, you know, that, that's, that that's continued through audio and video conferencing that's become the new normal as it were.

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Um, you know, there's, you know, we've had a number of sessions with, with, you know, particularly with LPs around the existing portfolio about, you know, Kobe had that, you know, analysis around, around, um, you know, the impacts, you know, assessing health risks of key portfolio companies and liquidity concerns where we hear that, you know, bank lending is drying up. So, you know, we, we've been able to maintain that, you know, that sort of personal contact through, through these, you know, video and audio conference mechanisms. Same, same goes with, you know, just keeping in contact with our team, you know, people on the ground, you know, weekly week, the twice weekly team meetings. Um, you know, that these continue, this continue to occur. And again, all through the use of, you know, the technology that we all that we all benefit from, you know, with the, you know, good internet speeds and good connectivity and you know, looking, you know, looking forward to the summer and beyond where we're thinking about, you know, our AGM again, you know, as part of keeping the wheel turning, we'll be, we'll know, we'll be looking at video conferencing solutions to be able to host, you know, annual general meetings for, for, for the various funds.

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So these are, these are just some examples of, of, of, you know, where, where we're seeing, um, or where we've been using, you know, these facilities, you know, webinars such as this one's fantastic for idea sharing, keeping a finger on the path. That's also very important as part of keeping the wheels turning. And just to make sure that, you know, you, you have got your finger on the past and you're keeping abreast of new developments in industry. You know, things still continue to carry on. You know, we'll still keep ticking along documents, you know, they still need to be signed in. You know, we're seeing, you know, he signed type technology becoming the norm where, you know, wording in agreements, you know, regarding acceptance and validity of these, these signatures are, are, are very much in place. So yeah, there are a number of areas where we've, where we've seen technology help us in our business.

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Um, Neil, thank you very much for those insights. Really interesting to hear how quickly firms have um, adjusted and are starting to use technology in new ways. Uh, the AGM point. Very interesting. And maybe that's something we can come back to later. So yeah, thanks so much Neil. Um, I'd now like to introduce our next guest this afternoon who is a resin Shaw who's the finance director at 17 capital. Um, rash started his career as a finance professional in the technology industry before making the move across to, to alternative assets. Um, he had a spell it, uh, Beaumont capital before joining, uh, 17 capital in 2012. Uh, good afternoon Roger, and really nice to have you here. Um, just a, a question that sort of follows on from some of the points that Neil mentioned. If we just take a step back from the current period of uncertainty, how was 17 capital using technology, um, in its from prior to this crisis and how does the use of digital tools by firms generally compare to two a decade ago?

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Hello Nicholas and good afternoon. Um, I would say something, a couple of initially risks set about with a best in class technology strategy, uh, whereby we purchased procured and work with technology providers that we felt were best in terms of providing a solution to our needs. We decided to mix a strategy where I was sourcing some of the core functions. So for example, funded administration, bookkeeping and parallel to give you a few examples and we expect that is also service providers will have the skills and resources to implement a suitable technology stack to service us as a client. I would say our technology stack as something capital is a mix of using Microsoft Excel and other tools we've invested in over the years. I would say this includes a CRM system. So we primarily use it for content management. Also for capturing deal flow information, arranging events now, well HDMS our marketing events and also for fundraising purposes.

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We've also been working, uh, and using a data room. So we use this to upload the physical way documents to be sent to our investors, how we primarily send fund reporting, couple calls and distribution notices. Um, we've also been investing into an investor portal. So this is really to provide our investors with our dynamic and fully digital tool for them to be able to see sending a couple of fund performance data in a variety of ways that they would not necessarily be able to capture fruit of standard reporting on a quarterly, annual basis. Uh, we've also been working on and using OCR and automation technologies. So we've been able to streamline our employee cash or credit card expenses and we're currently in the process of installing the invoice OCR technology as well to compliment our workflow. We've also been working, I would say with, uh, fund administrators and understanding their technology stack as well. Um, so certain areas like a waterfall calculation technology, uh, payment processing and approvals and seeing where technology can play a key role, I would say in terms of streamlining some of the existing manual processes. So what we are doing as a firm is pushing some of the technology initiatives in our industry onto our fund administrators to support us because we believe to have the resources and expertise to carry out such a roadmap.

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One last one, I just want you to mention 'em if that's okay. Nicholas is, yeah, go ahead.

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Yeah. When I started working with privately over 12 years ago, I've seen a marked increase in conferences and seminars, dedicating time to technology and what CFOs and CEOs should be thinking about. That's really a big change I've seen. Okay. Thanks Regina. It certainly sounds like, um, uh, 17 capital is maybe a bit further up on the curve, um, than, than some other firms have been. But certainly maybe after the next couple of months, um, uh, people will be, uh, be adopting similar, similar measures. Um, which leads us on very nicely to our fourth guest this afternoon. Um, private equity project specialist up to be Pigott who is the founding chief executive of private capital consultancy. Uh, Holland mountain. Uh, Barnaby's had, uh, been working in private equity for for more than 15 years and, um, delivered projects for, for more than 50 private capital clients.

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Um, some very good names on, on that portfolio. Um, and is obviously very well versed in the application of technology to alternative asset business models. Um, well combined would be really nice to have you with us this afternoon. Um, so we've heard from, from rash, from Neil, uh, from Justin how PE firms are using technology in house. Um, but what I wanted to ask you was, was how they, you know, how tools can start to be used with respect to, to portfolio management. You know, for instance, could we see, um, reporting tools and technology applied to, uh, portfolio companies and in a way that enables real time reporting or something along those lines.

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Um, thank you. Um, so yeah, around portfolio monitoring, I think it's fair to say that most firms today have got some level of portfolio monitoring, management and reporting in place. Um, you know, activity using, uh, one of the available portfolio monitoring solutions. Um, and that's typically, you know, collecting data in Excel spreadsheets at the moment and then sort of centralizing it, consolidating it, and then, and then the GP can use it for whatever purpose they need. I do think that is, um, we've got a few firms that we're talking to that are, that are looking at that and sort of saying that it is a really adequate or fit for purpose, um, but they want to go deeper and they want to go certainly more real time into, into their portfolio companies. You know, putting in hooks into their general ledger systems, their ERP systems, their finance systems, their, you know, they, they want to be pulling data out, um, you know, more in more real time and pulling data out to sort of help with the decision making process, um, that, that firm in any of the decisions that need to be made for that firm.

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So, so I think, yeah, it's fair to say that, um, you know, portfolio monitoring and management solutions are in place today, but I think they will improve. And they will get more real time, um, over time. And I think this will be driven a lot by, um, you know, investor reporting demands. I mean you've only got to look at the, the situation going on with covert 19 and you know, the data is pretty much out of date and they're not really relevant to, to people that they're reporting right now or at the end of the March. Um, and so I think, you know, investors are going to demand more real time information and I think, um, the GPS are going to need to look into how they, how they start to, to achieve that.

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[inaudible] sure.

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Sorry, I just lost my line there, Bonnie, just to be, just quickly to pick on that, pick up on a point there. Um, how far do you think, um, you know, the asset class generally is from, from being able to deliver that, that kind of real time reporting. Um, is there a lot of investments in time or is it something that can be relatively quickly?

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Sorry. Yeah, I, I think, um, I think at the moment these are gonna be quite bespoke projects, but you know, you've only want to look at the, the finance solutions that are in place with the big portfolio companies. I mean, they are, you know, they're going to be your Microsoft nav, your net suite, your sages, et cetera. So these are fairly standard, you know, certainly on the finance side, these are fairly standardized packages. So, you know, being able to build out the connectors and then centralize that information across all your portfolio companies and being able to look at it in more real time is certainly very doable. It's not like all these systems are bespoke. Um, so I think over time it will become more standardized and more and more, uh, more easily available to firms.

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Okay, great. Thanks Barnaby. Um, right. Well, it's also a pleasure to welcome, uh, IQ Stacey to this afternoon's program. Uh, who's the executive director of the, uh, IQ eco investor solutions business, which is a division dedicated to servicing the private markets portfolios of institutional investors with the latest technological platforms. Um, he was previously a captain in the British army before starting a career in alternative assets in 2007. And um, is obviously well versed in, um, in a lot of the solutions and tech options open to two managers. Are you good afternoon, really nice to have you. Um, so circling back to the use of technology by, by private equity firms themselves to execute their, their own operations, um, rash pointed out that he has seen a big change, but from your point of view, how has technology changed and evolved the way GPS and LPs interact on a day to day basis and what are the longterm implications of this for, for the GPLP relationship?

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Thanks Nicholas. Um, so yeah, so it's your first part of your question. I think really as, I think it's a general evolution of the asset class as it's become more main stream, uh, the relationship between the GP and the LP has become more institutionalized. And what that has meant is that a lot of the fund managers are now looking at technology to improve the way they communicate. Um, not only in terms of the quality and the content of the data, but also the frequency. So, um, I think Barnaby touched on it a little bit earlier. You IQ IQ with our investigations division, we find the end to end portfolio monitoring solution. And, and I think what Barnaby was saying was that a lot of it has to be pretty bespoke for that individual, uh, fund manager. So, you know, in this we roll that out thinking this is going to be for internal consumption and analysis for the fund manager.

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Um, but more and more and increasingly, especially with the current environment, we're having imagine managers saying to us, can we allow our LPs access to this platform so they can see certain first and data points that we would like to share with them. Um, and I think so I think this has been a bit of a catalyst in terms of the current situation. Um, but I think this is just, um, it is a trend and it's a trend which isn't going to go away. And I think, um, you know, I think the frequency of reporting will change the, um, how we report how fund managers report to their investors will change as well. And that's all thanks down to technology.

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Yeah. Thank you. Thank you very much. Uh, you know, again, really useful for, for setting the scene and okay, so we've made our introductions. Um, I think we've outlined some of the key points that, that we're going to cover through through the rest of the session. Um, and now wants to look into some of those points raised in a little bit more detail. Um, and, and the first thing I wanted to ask is, is how covert 19 specifically could galvanize or be a catalyst for changing attitudes within private equity to technology, uh, for good. Um, and Neil, if I could maybe come back to you, um, on the specific points once we are through the, you know, the covert 19 crisis, we're on the other side. Um, do you think that the way people have had to work through the lockdown will accelerate the use of technology by private equity? You know, post virus. I'm, I'm thinking, you know, will travel still be as frequent, will GPS be, be spending more time working from, from home offices rather than, you know, then coming into their, their main offices every day. I just wondered if that's something you've thought about or whether in any way that this could, you know, accelerate the change towards more remote working or, you know, digitalization being more inherent in the way private equity functions day to day.

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Yeah. Thanks Nicholas. It's a really interesting question and I think, you know, we, we've all adapted over the last few weeks too in a remote working and, and you know, making sure that we can still, you know, meet deliverables, meet LP demands, um, you know, meet our fiduciary duties. And I'm sure, I'm sure a lot of, you know, private equity, you know, senior management teams out there will sit back and think about, you know, where can, where can we focus our minds on creating efficiency, you know, perhaps, you know, generating more revenue or even looking at ways of saving costs. Um, you know, as I think, um, you know, coming back to this idea of remote working, I reckon there are huge, vast sums of rent that could be saved if, if we were all to moves or some certain firms or maybe all of us were to move more towards hot desking and, and, and, you know, and maybe not occupying such large offices and premises.

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I mean, we'll always need office space. We'll always know that that person or face to face interaction be it in the office or you know, going out traveling and meeting investors or you know, prospective management teams and you're looking at deals, you know, there'll always be a need for, you know, physical, physical property and, and, um, and you know, places to go. But I do think that, you know, I do think there could be, there could be ways of certainly saving costs, um, in terms of this hot pressing idea. Um, I, I do wonder whether the firms will actually think about, you know, whether, you know, again, it's part of the cost saving generation here. Head count, you know, do we, you know, is there, is there a potential opportunity here to perhaps go more for outsourcing, you know, to, to perhaps keep head count down and look at ways of, of, of perhaps in our looking more towards, you know, third party, third party service providers, you know, be it AI or be it for, you know, value valuations or, or the other such other such, um, services.

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Um, I do think, I do think, you know, we will probably all look towards, um, better ways of keeping connected with investors and, you know, looking at investment opportunities. And again, coming back to your cattle point, whilst they will fundamentally still be a need to travel and meet people face to face, you know, I do wonder whether the social platforms could be another, another sort of forum for, you know, to, you know, for thought, for communication to, to continue to, to develop, you know, for that, for that connectivity. So these are, these are some of the things that I've been thinking about in terms of, you know, how, how, um, you know, the lockdown might accelerate the use of technology. I mean, I do think there are, there are other areas where, you know, where we can all focus be it from a finance department perspective or you know, more in a deal doing a, you know, from the investment side.

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You know, just, just personally I've been thinking about, you know, the man, you know, something that Rod's just touched on, on, on, on payment technology. I mean, you know, in our, in our organization, you know, getting through, you know, payments is such a manual process. And I'd love, you know, I'd like to, I'd like to see more investment in technology such as payment tech to, to, you know, to find ways of generating efficiency. Just, just again, just to make sure that from a operations perspective it's, it's more seamless, it's a bit more slick. Um, you know, and then just coming back to my original point on revenue generation, you know, I think, I think there are certainly to be opportunities here to, to perhaps look at digital digitalization, um, you know, for value creation opportunities. Um, you know, again, just the, the use of technology generally I think we're all going to be focused on, on, on, on, on ways to, you know, ways to improve. And just as we've, you know, we've seen over the last 10, 15 years this huge, you know, increase in the use of technology in certain firms are ahead of others. I think that that trend will, will certainly continue with particularly with the large amounts of data that we're having to, you know, um, analyze, you know, generated by portfolio companies.

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Okay. Red is really interesting. Sorry Neil. Really interesting. Then I think you've, you've sketched out, you know, some of the possibilities for, for how, how working within private equity and in D generally could, could change. Um, Roger, if I could come come to you on this. So let's assume that that remote working does become more spread. There's less time in the office. Um, there's more Alliance on, on, on technology to, to allow people to work remotely. Um, what happens on the cybersecurity front? I know I've seen a couple of surveys which have shown a huge spike in cybersecurity crime. And I imagine if you are a manager with, um, very valuable data belonging to investors and portfolio companies, you need to be especially careful, you know, what should managers be thinking about if they are, if they have seen the possibility of accelerating remote working, you know, postcode at 90.

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Hello. Thanks Nicholas. Um, this is a great question because PE firms wrecking to the disruptions caused by cov 19 will primarily and wildly, so be focusing on I would say four key areas. So understanding the impact on their portfolio, having regular and more communication with investors, uh, ensuring adequate cash flow to meet the portfolio needs and of course maintaining operational, uh, within a remote workforce. But at the same time, as you say, PFM should also be concerned about potential increased suburb cyber attacks. Um, I strongly believe that this new remote working environment post quite a few operational challenges to peer firms. Um, and this concludes data and information security. So how are staff accessing company data in a secure way and also their use of different types of communication technology. So how are staff communicating with one another or more importantly, how they're communicating with outside of the organization?

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So what are the key points I would say about good subsequently at any foam is not just about the it firm that looks after you. It's also a cheer. Making sure it's everyone. Everyone's job, they starts at the board level. So this is really important because I think any form of data breach is likely to not just impact, uh, productivity, productivity, but also potential lawsuits or fines. And not to mention the reputational damage they could cause therefore the risk of not implementing a solid subscripted, uh, is this too high? So w one of the key areas I believe that GPS and LPs I've been focusing over the last few years is looking at a couple of calls and use of technology, for example. So over the years, many GPS have moved away from sending a couple of call notices from emails and to now moving towards data rooms that have secure access.

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Well when I was speaking to one investigator, but weeks ago you mentioned to me though a hacker tried to replace a couple of calls. Notice that once you've to send to them with a sort of Mexican bank details, of course that roasts, especially today invested because that GP was actually based in Luxembourg. So it's really just making sure everyone's a bit more vigilant in this kind of new working environment. And if I can just talk about some of the practical areas that firms should be thinking about is classical classical examples will be around changing passwords on a regular basis because passwords are obviously the first line of defense against cyber criminals. Um, authentication. So making sure staff accessing company data in a secure way and enabling some form of multifactor authentication as a minimum. So for example, what we do at 17 couplers staff only able to tax us to come to the server and emails with one the windows password and to having a fabric code generated from their work phones. We should also think about having more staff training. So making sure, uh, staff are aware of these types of cyber cyber security incidents and how to protect that company data. Um, so what we've been doing for 70 couple again is looking at doing phishing tests and, um, staff training around around these areas.

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Okay. And what I've just for you a few of, uh, areas of, uh, no, it's, I just want to mention the van investors as well as the investors. Also oxen, a lot more questions around cybersecurity as part of fundraising, fundraising process. Uh, so around staff training and awareness house, Dustin done phishing tests, pen tests, uh, remote working out. How does, how does he manage? So again, there's a lot more awareness from the investors as well.

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Okay. Yeah, I quickly Barnaby just do you have any observations on the, on the cybersecurity point, uh, specifically, uh, uh, firms generally on top of it, um, or has the sort of sudden locked and remote working, uh, focus minds, if I can put it that way?

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Yeah, no, I, I, I think to be fair, I mean most of our clients has got a pretty good handle on, on, on the cyber security angle, both, both themselves as a GP but, but also across the portfolio. We've seen a lot of firms going through cybersecurity audits with the portfolio and put it in their own firms through, um, you know, as a, as Roger saying like pen tests and things like that and the phishing campaigns. So I think firms are generally in a, in a, around the sort of cybersecurity point. I think firms are in pretty good shape on that.

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Okay. That's good to hear. And then obviously sounds like they're all prepared. It's going to lock down certainly on, on, on, on that side of things, which I'm sure is, is reassuring for, for all stakeholders. Um, okay. I just wanted to come back to, to Justin and Hugh. Um, and what if they had sort of any observations when we look at how private equity is uptake in use of technology compares to other alternative asset classes? I hadn't, Justin, maybe if I could come to you first with one question around this topic. Um, when you compare the pace of uptake of digital tools by, by private equity with other alternative managers and you know, how's private equity shaping up? Is it up the curve? Is it behind the curve? Is it generally in line? Um, you know, what is your assessment on, on private equity specifically when it comes to the use of tech?

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Sure. Thanks Nicholas. Well, I think if we, if we think about it from a private fund manager or private equity fund manager perspective, I think P is reasonably, uh, ahead of the curve. When you again, say real estate debt or, or ironically venture capital, uh, at the fund management level. And I think the reasons for that really come down to the risks that are being managed. So in a private equity context where you have a relatively more leverage at the portfolio company level, you know, it's not unheard of to have four to six X leverage, uh, debt leverage on a portfolio company MP. Whereas in the real estate space, you're unlikely to get those kinds of levels of, of leverage against assets and venture capital, uh, by definition often cart, uh, lever up cause there aren't enough cash flows to do so. So, um, I think to monitor covenants and put for the company performance in a leveraged environment, P I think is reasonably along the code to monitor those risks.

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Uh, I think all the PE managers that we talk to and our clients tend to invest first in the front office area. So whether it's fundraising and CRM tools to manage investor LP relationships, recognizing the, the role of technology and close investors. Um, and then obviously to manage fundraising, uh, has definitely been an area of investment. And then to some extent on the deal side. So managing, using CRM to track deals and track those proprietary opportunities to try to create value in the portfolio side by creating, by using technology to ultimately source more deals independently of, of standard auction processes. Something that we see, uh, uh, has been invested in over the last five years. The one area that I think is getting a bit more attention now is post, uh, deal monitoring. So portfolio monitoring, I think to the Barnaby's points before around a technology for real time monitoring and giving access to not only the front back office of the P firm but to investors, um, is, is probably the next area where we see more investment coming now to, to track the portfolio.

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Ah, very interesting. Justin. Thank you. Um, who again is interested in your thoughts and, and also maybe just to put a slightly different slant on the same question. Um, does the, the size of the manager or the geography of the manager come into it at all? Will you see different uptake or different levels of sophistication if you do filter for, for size or, or geography? I think

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there's always going to be differences, differences between the size of farmers and how that sort of, um, sort of shows itself in terms of operations in 10 technology. Uh, just because of, you know, um, economies of scale, you know, generally, you know, productive firms are fairly lean organization organizations, even fair and, um, big in, in, in industry, in terms of name and uh, uh, prestige. But, um, yeah, I think, I think it's easier for large, larger fund managers to implement necessary perhaps a portfolio monitoring software or CRM system themselves. Whereas for smaller managers it might be, um, a pretty big undertaking and a huge cost and also a lot of time resources which could be best spent actually doing the deals. But I think in the long term, I think we're finding, um, irrelevant of the size. People are now starting to look at technology and how they can not utilize it for, um, analysis on that card portfolios and also for future investments.

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Um, so I, I tend to see that large, larger fund managers are doing things implementing software, um, themselves in house, whereas the sort of, um, mid to small size for managers are actually looking to outsource, um, this rug and having to build themselves. So I think there's definitely that, uh, that, um, play in the market. Also in terms of geography, um, whether you like it or not, a lot of, um, you know, a lot of the trends that we see do normally STEM from, from the U S and then move eastwards from there. And again, from this perspective, I think the U S both the LPs and the GPS have been early adopters of technology. Um, you know, I think, uh, Roger was mentioning about Kerry modeling with him, a lot of LPs, uh, trying to utilize technology as much as possible to help with that carry modeling for the investments they do into the funds.

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However, saying that, you know, in Asia, um, we're getting a lot of interest in our investor solutions, um, offering, uh, where from, I just want to get a better analysis on the underlying companies and, and uh, and so, you know, I think, I think it's just a general trend within the market to be honest. I suppose, you know, I like hedge funds where, you know, often technology has been integral to sort of outperforming their peers. That's not necessarily the case with private equity. Um, so perhaps that sort of, um, had a bit of, um, some sort of history and sort of effects on, on utilization of technology the past. But as I said, as the asset class, it became more and more mainstream. Um, so has the statistics, sophistication of utilizing technology.

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Yeah. A huge to follow up there. Are there any particular areas where you've been surprised at the lack of uptake of technology, if there, if that makes sense at all, sort of anything that you've noticed where, where you have been a bit surprised.

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Yeah. Uh, you know, the technology has been there for, for some time, uh, in terms of being able to do analysis on my portfolio, but I think you might have the best, um, software available. Uh, and there's certainly a lot of software in the market for four masters to choose from and indeed LPs. But unless you have the data to go into that software, uh, in a study, you know, it has to be consistent and it has, do you have to get that? And then we're not talking about publicly, um, uh, accessible information, private equity investing to private companies. Maybe family run companies where, you know, in the past, and I think gathering that data has been a big hurdle and has probably prevented people using technology because you still have to get that, that information that can be quite manual, manual, intensive. So you having to roll on people to gather that information.

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Also chase the underlying, uh, management, uh, teams of those companies and you know, consistency and quality of that basic regions. Um, so I think that's been a big hurdle, um, for, for people. And I do think perhaps, um, it's also been a bit difficult because, so a lot of the service providers haven't really looked at this as, as a sort of service offering and we've maybe been a bit slow to drive this to the, to the, to the industry. So people have thought, well, the only way available to for them is to buy the software. But as I said, that really is only half the equation. Um, and then you've also got the issues with is the visualization tool and platform that you might be looking, uh, to, to, uh, utilize. Does that cannot interface with your back office? Accounting systems. Um, and there again, there needs to be some sort of manual input or some type of project management work around that, which again can be quite, um, labor intensive and therefore can quite expensive depending on what sort of information you're looking to capture.

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Uh, he, thanks. Really interesting. Um, um, I know I was hoping to ask a few more questions around this topic, but the time is moving swiftly on. Um, so I'd just like to move on to, to another point and this is something that both Justin and you have alluded to and it's the, the points around how, uh, GPS are using, um, private equity as part of their strategic execution rather than just as an operation operational tool. Bonnie, if I could come back to you, we've spoken about technology's impact on transforming the back office of the GP, but what about the front office? Um, Justin and you have sketched out, you know, some of the tools using a CRM or you know, as a, as an origination tool or, or some of the portfolio management, uh, analytics platforms that are available. Um, what have you observed with respect to how GPS are using either data analytics, um, artificial intelligence, you name it, to, you know, to almost help them with their core function of, of, of sourcing and perhaps even executing deals. Is there any evidence of, of some of these tools being used or are we a long way from, from that actually happening?

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Yeah, yeah. I mean I think just before we come onto the AI point and the sort of data analytics and machine learning, I mean, I think, I think that's kind of running before you can walk. I mean, I think one of the interesting things at school and out of the covert 19 crisis is, you know, a lot of firms out there were very resistant to using tools like, um, teams and zoom and Slack. And there was kind of minimal uptake in the front office. And I think this whole, the whole COBIT 19 crisis has really forced people to actually start using internal messaging, start using teams and Slack. Um, the other thing that's particularly weak in the investment teams in front offices is controlled workflow and document management. Um, and so now we are seeing firms that are having to put SharePoint in place or other document management systems so they can get things more structured, more organized because you know, everyone's all over the place.

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So I think we are seeing, we are seeing some kind of forced changes in the investment teams and how they operate. And I think that's really good and it brings structure to the data. I think to the point he was raising so much of the data that the GPS have in there for if you like the deal sourcing and deal doing and everything else is all in spreadsheets and word documents. I mean you aren't going to be, you aren't going to be able to do very good analytics or leverage AI or leverage machine learning while everything's in word documents, spreadsheets, and then people's email boxes. So, so I think there's a long way. Um, there's a long way to go before, uh, investment teams are set up and structured properly in a storing data properly that over time they can then combine their own data with the other other data that's available to, to get some meaningful insights.

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Um, we, we have seen some firms out there, um, you know, trying to, to sort of use their CRM data in their CRM systems and combine that with multiple sources and like companies, house data and facts, that data, et cetera. So we are seeing firms out there that are trying to figure out the relationships they have, figure out, you know, companies that are perhaps outperforming others within, within certain sector focuses. I just think know, I don't think there's been anything come out of those exercises that are really, really meaningful. Um, so again, I think we're way off there, but I mean, all I would say is that things are heading in the, in the right direction. Um, but right now I think it's about better quality reporting, better quality MRI. It is a little bit about data and analytics. It's about serving investors. It's less about using AI and machine learning to improve your, um, either your investor, uh, your investment process or some people looking at trying to improve that fundraising capabilities.

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Okay. Really, really interesting Barnaby. So, so sounds like still a still a long way to go. Um, but maybe if I could just come back to, to Roger, Neil and maybe Rach first, um, obviously there's still a long way to go as, as Barnaby outlined, but, but have you considered or looked at, you know, the way any way that data analytics or AI could, could help you in your deal origination or valuation? Um, you know, anything about the, you know, the core function of other, of an alternative asset manager. Um, is there anything you've seen that's cultural imagination or attention?

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Yeah, I can definitely agree with what Bonnie said around largely it has, it's starting to think about using AI and other tools to support the investment process. And that's probably because they've probably got huge amounts of resources to dedicate and they'll probably have larger teams as well. And larger tech based teams. Actually, I think most firms say below five or 10 billion us dollars will still rely on traditional methods to generate deal flow. Just like us. We'll still be using, um, Excel and other, other tools to supplies visual for it. I don't think we'll be using anything. We'll create a bid on that anytime soon. Great. Thanks Raja. Neil, I wonder from your point of view, is there anything that maybe you're not using just yet or not something you'll be using in, in the near to medium term, but anything that you've looked at that you've thought it, you know, has potential and, and, and could be a long term, um, you know, tool that that may come into the industry more.

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Yeah, thanks Nicholas. I think, you know, um, similar views to Barnaby and Raj to say, I think, you know, we hear a lot about AI and machine learning and they seem to be quite, you know, buzzwords at the moment, but I think, I think we are, you know, some way off, but we do hear of, um, you know, certain, um, private 60 firms out there at the larger end where they do have dedicated teams. Um, they're using AI techniques in, um, you know, in due diligence, the mapping, analyze large volumes of data, you know, perhaps to, you know, compare to peers or develop insights into value creation such as ESP. Um, but I do think another area, and related related to this is, is perhaps before, you know, firms, you know, invest in their own AI capability that they made before we get there. Being more of a reliance on third party AI specialists or AI providers where they're providing, you know, similar activities, um, to, to all of those that I've just described. Um, you know, and, and perhaps you know, in the interim, there may be an opportunity to, to leverage off some of that capability. Um, you know, over the coming months, years, you know, before sort of investing in sort of in house capability.

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Okay. Well thank you. So obviously a long way to go but, but it looks like third parties could, could provide, uh, a pathway to get there. Um, okay. I just wanted to remind everybody who has joined the, the broadcast this afternoon. There is an opportunity to, to ask questions. So there should be the functionality on the, on the webinar, uh, application to send questions through. So, so please do, do, send anything over. We've got a great panel, lots of expertise, so this is a good chance to, to pick their brains. Um, but I had one question before we go to the audience and, and this perhaps comes back to some of the points that Barnaby Raj and Neil NTD, Justin, you have also mentioned, um, and it's around, um, how the interface between people and technology moves as technology becomes increasingly powerful. Um, w with greater capability, um, you know, is there still a long term role for people or, or you know, in 20, 30, 40 years, however long it might be, could we see deals, due diligence, fundraising completely automated.

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Um, if we don't go that far, will we see people in private equity, um, you know, doing different kinds of things or focusing their time in different ways to, to what they're doing now. So lots of questions there. Justin. I know you've, you've got some interesting thoughts on here, on, on this. I know we've spoken about this before. Um, you know, w what do you think, where do you think the interface is, is moving between people in tech and how does the kind of work or where people spend their time change in 15 to 2020 years time, however long it is?

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Sure. Maybe two, two things come to mind on this one. The first is obviously technology is just an enabler, but I think the extent to which technology has penetrated the private assets, private fund spaces is still pretty, pretty new pretty early in that journey. And there are ways that technology could free up, whether it's robotic process automation, uh, or analysis or preparation of analysis that really frees up, um, the back and middle office staff at fund management companies to, to add more value and spend more time doing what with the analysis, then say preparing the analysis, whether it's cashflow forecasting or liquidity reports. And so on that, those things, there's a lot of time spent preparing reports and technology can be a way of creating those things in the first place to free up time for the analysis. Um, I think in, in 20, 30 years time, I think we'd like to see, well maybe less than less time, that where we'd like to see is, uh, more of a shift from back office to what we call the central hub.

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So for managers, uh, back offices and finance teams being treated as the central team, not sort of a a back office unit and sort of at like the back of a dark cupboard of a shop, but really the central hub in the middle of the, of the shop floor where people come to for data because the technology could be a very important way that helps portfolios portfolio companies and the deal professionals who run those companies to optimize the financial performance of those firms. Whether that's improving their ESG saving money through SG or just better, um, better management of cash or other ways of indeed applying technology at the portfolio company level to improve EBITDA. There are significant ways in which technology could help finance teams contribute to actually the profitability of the underlying portfolio companies add more value to the firm by being that central hub in our view.

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Really interesting. Justin Neil, I was, I was interested in your thoughts on that, especially that last point that just made about how the finance function goes from the, you know, the back corner of the office into, you know, central to, to value creation. And strategy execution. Is that something that chimes with you? Is that how you see things evolving?

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Yes, absolutely. I think know technology is there to, to, you know, as Justin said, it's an enabler. It was improve efficiency. I think, you know, over the years we'll probably see a shift in the skill set that we're seeking when we're recruiting, you know, finance professionals or you know, mid middle office professionals. Um, you know, cause at the end of the day, you know, you know, we, whilst whilst there needs to be, you know, a clear joining up the dots from the back office through to the front office and you know, some of what Justin has just talked about in terms of analysis, in terms of, you know, adding value, you know, whether it's, you know, through better management of cash or you know, under like, you know, look through portfolio company analyses. You know, at the end of the day technology is going to enhance and, and, and I can, I certainly see that, you know, us moving, you know, in that, in that particular direction. So, you know, we're, you know, so then it does become more about revenue generation and focusing on, on, on, on how to increase the increase the,

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the top line and the bottom line. Okay. Racsana you've, you've put it quite nicely. It's almost a technology has gone from, uh, you know, something that that's in the cost line into something that's an investment in your, you know, the, the delivery of your, your strategies. I, I'm guessing that sort of what Justin and and Neil have have said would sort of align with w w with how you see things perhaps. I mean, if you think about 10 years ago, most firms will probably still thinking that college is in the expense environment. You wouldn't have a dedicated technology department, for example. What we are seeing now is more people or more and more firms starting to think about employing tech-related people and having that as a core function within the firm, sitting alongside finance, HR, and marketing as one of the back office functions, I would say. Okay. Yeah. Interesting. I'm here. If I could come to you. Same question. Um, I mean, I guess you're, you're living the state today and you probably see sort of firsthand how, how roles within an organization change when, when new technology is installed or made use of, um, how do you see things evolving and, and how does the skillset that that organizations in private equity want from their people change as technology develops?

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Um, so I think, yeah, I think I'll be, I'll be pretty much, um, repeating a, what the guys are saying. I think a lot of, uh, there's been a lot more skill sets required from a project, jeez, which let's say comparing 10, 15 years ago, I think you've got to have, um, you know, uh, someone who's gotta be tech savvy, whether that's a, um, an individual or a team, it just depends on the size and scale of the fund manager and indeed those, the LPs as well. So I think there's going to be a broader spectrum of, of skillsets, um, because you know that you're going to have to have, uh, potentially people to train, uh, employees up on this, uh, especially if there's going to be a lot more, um, you know, remote working from home, uh, and different hours, et cetera. So I think, um, you will see a, um, I think a broader spectrum of skillsets definitely in the PE sector.

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Okay. And, uh, Barnaby, if I could come to you two to close on this one before we go to audience questions and audience, please do keep them coming in. We have had some through, so thank you for those. But, uh, D keep them coming in. Um, when you've worked on projects in the past, let's, let's not look too far in the future. Um, you know, where do you notice things changing? Are there any particular patterns that you see, um, with respect to how firms change or evolve when they, when they do make a big investments in tech infrastructure?

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Um, yeah, I mean, I, I, I just got a couple of points to raise on this that, that um,

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sort of answer your question but in line with what you asked originally. I mean I think there's a couple of, one thing that from level a, one thing to industry level that that well two things really that need to change as we move into the future. I mean for your average GP or, or investment firms have got to move away from their reliance on Excel. Um, and obviously you know, the people associated with that reliance and so they, there needs to be a move towards investing in decent operational systems. There needs to be new technology that comes along to solve some of the complexity problems. So I think firms have just got to recognize investments that's needed, the investment that's needed to move away from Excel and get data into a more structured, um, format for them to then use for ongoing purposes. I think secondarily, the industry has got to figure out how are they going to be able to, you know, we're still sending, you know, GPS are still sending PDF. They're producing PDF documents and sending them to LPs and LPs are taking PDF documents and typing numbers into systems is completely ridiculous. So there's gotta be a way of, at an industry level of improving, um, you know, the, the sort of exchange of data if you like, between GPS and LPs as well. And that's something that over the next five to 10 years really has to happen when you compare ourselves to other, um, sort of sector, the other financial services sectors.

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We thank you. Um, okay, uh, we've got a bit of time for some questions. We've got five minutes until we'll, we'll, we'll look to close. Um, so here there's one that's coming for you. Uh, I know in one of your answers earlier you were sketching out various solutions for, uh, for failure reporting. Um, uh, if that one of those systems or ideas were to be implemented, how could ESG be incorporated into reporting to LPs, you know, via a tech enabled platform? I guess. Is that the sense I'm getting from this question?

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So I think, yeah, this, this what we found with, um, the Coby 19 crisis at the moment is that actually, although we, we initially thought perhaps, um, you know, the ESG trend and it's been a huge, a huge trend, uh, you know, we're just getting a lot of coverage, um, and attention from investors. You know, my initial reaction with the Cobra 19 crisis as well, I think, I thought people would be sort of battened down the hatches and sort of concentrating on, on the sort of risk exposure and Formance impact of the crisis on their current portfolio. What we have found is actually ESG is still, um, still very much at the sort of forefront of people's minds, especially the S in ESG. Uh, when you've got, you know, um, almost a sort of, uh, tenfold power struggle between sort of shareholders and performance of the companies and obviously the welfare of employees, et cetera.

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So that's really coming to the fore. Um, you know, so with, um, with, with, with anything E as long as have the data, we can capture that in fact where we're actually releasing a ESG dashboard as a sort of extra modules to our community cosmos platform. So um, to track that, I think the issue is though, you know, there could, as an LP you could have so many different data points for ESG, um, because a P midmarket from Mars you might have track completely different ESG data points to it infrastructure or real estate for managers. So I think it's, it's being that sort of disciplined in exactly what is the ESD data you're looking for, what are you trying to capture and then just sort of hone down onto those, onto those person data points. But it's definitely been a trend and it's continuing to be a trend going forward.

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Okay. Thank you. Certainly I think the ESG metrics to be standardized that, that's a whole other other webinar. So we'll, we'll, we'll stay out of that. We'll stay away from that rabbit hole for now, but certainly very interesting point. And maybe it's something we can, we can schedule that another time. Okay. We've got a few more minutes. Um, and just a couple more questions. Have come through, um, one about blockchain. Um, how widespread or not is it in the private equity asset class and, um, what are some of its applications in a, in a private equity setting? I don't know if anybody would, would be able to take that one. Justin maybe or, or perhaps Barnaby, but first come first serve anyone that we've only ever seen.

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I forget which administrator it was. I think, I can't remember now, but, um, I think gesture and did a pilot with a USS and unit gestured, did pilots, um, around using blockchain in and around their partnership accounting or, or that fund up. And, but I, I don't think anything's really come of that, um, in terms of having distributed ledgers and things like that. So I'm not sure we, we certainly don't see any of the other mainstream vendors out there investing in blockchain as some part of a future strategy. Um, so yeah, nothing to add from us there.

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Yeah, I won't, I won't name the administrator of course, but, uh, I don't know who I was referring to. It was, it was received a lot of fanfare and I suppose blockchain has promising in the PE space for really two main areas. The first is the LP, the partnership accounts because there's a lot of reconciliation that goes on and reporting and exchange of information between LPs and GPS around what the balances are, amounts drawn down through the various capital account balances and having that in a distributed ledger so you don't have that separate records. But a central distributed ledger has, has on paper a lot of promise, but it hasn't really, despite those initial trials hasn't really seemed to have taken off in terms of being adopted. But I do think taking a five year view, it has a lot of scope. Uh, the other area that, um, is been looked at in a bit more detail is post AI FMD, the in the depository worlds, um, the custody of assets.

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So what not replacing the sort of list of that listed equities area where clearly there's a lot of application, but in the PE space also trying to apply it around custody of assets to verify and maintain registers of assets and a blockchain solution. It's, it would remove some of the aspects like, um, like you see around audit confirmations of before the company assets where, you know, the idea of sending a a letter signed by an FD to a company to say, can you confirm that you actually hold these shares in this company? Is it, it's a kind of application that could, uh, could, um, be disrupted through blockchain. And the third area that I think it's actually being used more is actually around smart contracts and using things like stigmatizes as we are around signatures and documents and smart contracts like Ethereum where we've seen some application of that in this space. Because that's just got a very sort of quick and practical application. I think like all of these new technologies, we need to find a really quick and useful way of applying it. So it's not just a sort of theoretical, um, uh, opportunity.

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Uh, Justin, thank you so much. And I think that that final sentence really sums up a lot of what we've been discussing this afternoon. Um, okay. So, so we're running to an hour, so I think we'll, we'll wrap it there. And that just leaves me to say huge. Thank you to all of you who, who've joined us this afternoon. Thank you for your time and attention. Um, and a big thank you to, to I guess this afternoon, uh, Neil meter, Regine Shaw, Barnaby Pigott, Hugh, Stacy and Justin partings and thank you all and good afternoon.