How private capital funds can use technology to manage data complexity

Our report on technology for PC funds finds data management is often a barrier to efficiency. Yet by harnessing innovation they can unlock new capabilities.

Effective data management is crucial for private capital (PC) funds. But as our major report ‘The Future of Fund Technology’ finds, more than one-third of them (35%) still haven’t got to grips with it, saying they have no data warehouse or big data capability.

Over the next few years data will become ever-more critical to gaining a competitive advantage. Enhanced data management solutions can provide actionable insights that can help managers deliver higher returns, gain operational efficiencies, better address compliance and regulatory matters and produce richer reporting for investors.

Those that aren’t yet doing enough with their data often do have plans to improve. In our survey of 300 senior-level decision-makers in private capital firms, 77% said that data analytics would be one of the two most important technologies for funds over the next five years.

The situation is certainly not beyond repair. There is a huge opportunity here and funds still have time to seize it.

Awareness of funds technology is growing

It is a common belief that today’s PC funds have to deal with much more data than their predecessors, but it isn’t necessarily an accurate one. There has always been a lot of data to contend with in the sector; the real issue is that there is now greater awareness of the value of collecting and analysing it.

Previously, data was too scattered or its format too unstructured, making it hard to work with. PC funds have been collecting data for a long time, but funds technology innovation is now giving them the means to analyse it.

There are challenges for funds as they get to grips with data management. Among these are:

• weeding out redundant data
• reconciling and validating inconsistent metrics
• spotting and correcting data errors

How PC funds can harness the power of data analytics

The most important capability for funds is actually the automation and analytics applied to the data.

Data analytics can help funds with:

• fund performance analysis
• active management of portfolio companies
• guidance on investment decisions
• treasury management
• operational efficiency
• due diligence and speed of Know Your Customer (KYC) checks
• providing an edge for negotiations
• increasingly refined investor reporting

Our research found that this ability to produce more detailed and targeted investor reporting is the main function for data analytics currently, with 51% of respondents overall citing this use. This is also the most time and resource-intensive task for PC funds.

Managers should aim not only to derive insights from the data they have, but also to seek pertinent data from portfolio companies and other external sources that can be analysed alongside internal data. Particular strategic areas, such as environmental, social and governance (ESG) compliance and reporting will require lot of third-party data

How will the role of funds technology develop?

Efficiency is certain to increase. Data storage is becoming easier. Machine learning (ML) is deriving insights from unstructured data, making social media sentiment analysis, for example, just as achievable as combing through an accounts spreadsheet in the past. In time, blockchain technology will automate straightforward but important data management tasks.

Used properly, data management technology can speed up processes, free staff to work on other projects and unlock insights that were simply inaccessible to funds before. Surely they should make the most of the opportunity.

Four steps to building a data management plan

• The starting point for PC funds is to determine what data they have available and what they can collect and add from elsewhere.
• Next, they should work out what can be analysed, what the likely benefits will be and where the biggest data needs lie. Balancing the answers to these questions will give a good idea of the necessary plan. If the greatest need comes from the investment team, then that is the place to start. If instead, the bigger pain point is operations (for instance in cash management or compliance reporting for SPVs spread across the globe), priorities will need to be defined.
• Having identified an area or two in which to begin the data management project, managers should consider what can be done in-house and where expert help from a third party would be beneficial.
• From there they will need to draw up a timeline to outline when the project will be delivered – whether building it internally or working with a third-party administrator or solution – and when benefits should start to be seen.

It is important to manage team expectations, getting members to buy into the new capabilities but also to understand its limits. Once the first project is up and running, funds can move on to the next and gradually extend their data capabilities.

Data management can feel like an overwhelming problem for many funds, particularly those that don’t have a lot of in-house technological expertise. However, it is becoming a vital capability and with the right partner any fund can add the data management tech that they need and realise the opportunities it brings.

Why Intertrust Group?

• As a strategic partner, we offer a full-spectrum service tailored to meet all back-office needs throughout the lifecycle of a private capital fund. This against a background of ever-increasing reporting demands.
• Our proprietary innovative technologies are combined with global knowledge and experience to deliver added-value services catering for all asset classes, while increasing manager visibility of portfolios on behalf of a fund’s investors.
• Our expert teams harness tools and cutting-edge technologies to eliminate costly errors in the handling of fund administration and corporate actions, investor relations and portfolio management.
• We offer bespoke solutions for funds of all sizes to meet administration requirements so they and their partners can concentrate on investor relations, fundraising, closing deals and profitable exits.
• We help funds to navigate the increasingly complex regulatory environment with solutions tailored by jurisdiction and specific compliance requirements.