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Adapting to a world where data will rule

2 April 2021

Ranjan Mishra

Global Relationship Manager, Private Equity and Hedge Funds

Ranjan Mishra

Global Relationship Manager, Private Equity and Hedge Funds

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Data is set to play a crucial role in private capital, but it is still kept in silos. How can we bring this wealth of information together and provide a bird’s-eye view to meet the needs of our partners, funds and investors?

Investors, investment teams and regulators are looking for more data than ever. Investors in particular want transparency and access to data beyond fund performance in areas such as portfolio performance, expenses, ESG – as well as on cybersecurity and operations oversight. Ultimately, the availability of solid, timely data is essential to help shape their strategies.

Right now, the Institutional Limited Partners Association (ILPA) is championing greater transparency and uniformity through its ILPA reporting template. LPs are seeking greater disclosure around fees, expenses and carried interest – driven by the compliance risks brought by the US Securities and Exchange Commission (SEC). Many LPs have further customised these ILPA templates to include reporting on fees and expenses.

Clearly, data and insights based on it are playing a crucial role in private capital today. And expectations are set to grow further in future. For example, as ESG becomes more prominent in investment decisions, so the depth and complexity of updates needs to intensify accordingly. That’s why private capital fund managers must pick the right tools to help them deliver.

According to our latest Intertrust Group global survey – conducted between November 2020 and late January 2021 – 63% of limited partners (LPs) expect either live or daily data on portfolio performance, while 54% demand cybersecurity updates. At the same time, 50% of CFOs and 55% of investors count on live or daily updates on operational Service Level Agreements (SLAs).

Different stakeholders need different data

It’s clear that demand for data is coming from different quarters: regulators, investment teams and investors alike.

Regulators have become increasingly active in the private equity (PE) space and are asking for more periodic filings. PE firms seeking new allocations from LPs not only need to provide deeper insights on investment data, but also on operations, cybersecurity and underlying portfolio data.

Sophisticated institutional investors are pushing the benchmark even higher for transparency, whether it relates to performance, asset valuation, industry benchmark or fees and expenses.

And we’re seeing more and more focus on transparency here in the US – the state of California, for example, passed its alternative investment transparency bill in 2019. Other states such as Washington and Virginia also have transparency laws; and Colorado took a step in this direction with its recent pension reform bill. GPs and funds are quickly finding themselves with limited options – unless they accept these transparency requirements.

At the same time, access to an initial set of data only triggers the clamour for another set of data. The Covid-19 pandemic has made all stakeholders manage, monitor and participate in investment and non-investment decisions through access to periodic data and insights rather than through in-person meetings and due diligence visits.

Still, PE firms lag behind when compared to peers in various other industries. In reality, very few of them have a single view across general partners (GPs), ManCos, LPs, funds and underlying portfolio companies.

For example, GP-related data such as accounting and compensation, as well as technology and cybersecurity data, are present in Excel and disparate systems. On the other hand, LP- and investor-related data is spread between fundraising, investor services and fund administration teams.

Furthermore, investment teams are increasingly reaching out to operations and finance teams to not only monitor the underlying portfolio – but also to assess industry benchmarks and even use data to simulate industry predictions or ‘what if’ scenarios.

Silo storage vs bird’s-eye view

Today, all these insights are stocked in separate “boxes”. The problem is that GPs are seeking multiple platforms or service providers that can cover GP, ManCo, fund administration and investments (and structures); not only creating silos but also meaning data is spread across different in-house and third-party locations and applications.

To address this, firms need to provide a unified view of accounting, operations, investment and portfolio data. And they need the underlying systems or processes able to do this.

At Intertrust Group we have solved this problem.

We have developed two solutions. Our Funds 360 platform allows us to provide a single consolidated GP, LP, and fund data view across in-house, Intertrust Group and third-party data. In addition, our SPV prime solutions provide a consolidated view and dashboard for all legal entity and investment structure data. We are unique in offering fund administration, legal administration and technology solution through local teams across 29 jurisdictions, with the technology and capability to bring all these components together.

We are piloting this approach with a few clients, who are excited to see what we are doing. Every PE firm has a unique dataset, which will inevitably require a custom solution; GPs need to think ahead and plan how they will deliver the technology and data LPs expect if they are to stay in front.

There is an analogy for the data, and resulting opportunity, in every industry. For example, in the automotive sector, Tesla reached 5 billion miles of autopilot data in Jan 2021. While this may not be a challenge for other carmakers today, we all know that the future of the industry will be defined by companies such as Tesla.

The threat is not here right now. Or in the next quarter. Or even in the quarter after that. But we anticipate a “Tesla moment” in the asset management industry in the coming years. This will see a small set of PE firms break away from the peloton of current PE providers.

Preparing for the post-Covid world

Covid-19 has changed the way every participant in the PE ecosystem engages and partners with others. LPs have had to adapt to working with GPs through data insights given the inability to meet in person. GPs that proactively shared and collaborated with LP and portfolio companies through data and insights during the pandemic are now standing taller. They are much readier for the new normal than those that did not.

The desire for on-demand, comprehensive, good-quality data will grow even more in the coming 18-24 months as we emerge from the pandemic, with investors that are keen to take on opportunities that private capital offers.

So, is data transparency a must-have today? This is the important question. And the answer is no – for now. Are CFOs at risk of missing future opportunities if they don’t have a comprehensive data strategy already in place today? Absolutely.

How Intertrust Group can help private capital and hedge funds

  • Managing accounting and reporting obligations
  • Cutting-edge technology for end-to-end fund administration platforms
  • IRIS client portal to provide a comprehensive portfolio view
  • Solutions customised and designed to meet specific client needs

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*Source: Global Custodian in partnership with Intertrust Group; a global sample of 300+ chief financial officers at private capital funds were surveyed between 20 November 2020 and 26 January 2021, including 88 in the US.