With the same intensity as Indiana Jones running from a menacing 20+ foot boulder, we are all on a journey for a golden idol in the form of perfect data. Whether the role lies at investor relations, tax, legal, deal team, or accounting, data rolls quick in private capital. On that note, we must agree on a common theme, Excel is not making things easier. There are simply too many attributes to manage within a workbook and too large a risk if said workbook breaks, changes, or gets deleted. This leads us to the path now more frequently travelled: structure that is attained by asking the tough questions, utilizing the right technology, and shifting our mindsets.
Private capital continues to expand product lines and sizes which leads to a growing call for tracking and servicing. One avenue of increased focus has been on specialization in data science which as a Business Insider article notes, “is proving to be an essential instrument in transforming private equity business.” Though, we must question: Will this lead to isolation of data or roles in order to continue servicing the private capital model? On this, Citisoft's David Quirk notes:
“Silos are created when departments either deliberately or inadvertently withhold data from other areas within the firm. They can exist when some users have access to (or knowledge of) certain data that others do not. Data silos often multiply with the acquisition of a new investment manager, the launch of new products, the introduction of new investment vehicles, the formation of a specialist department or team, or the implementation of a narrowly targeted (function or asset type) application.”
Specialized roles and requirements will continue to influence the delicate data balance within the private capital servicing model. However, we must not lose sight of the goal to keep data organized and open to maintain a competitive advantage three, five, or ten years into the investment cycle.
Another consideration of investment management data can be seen from a quick Google search: the call for transparency. This comes in many forms with the most notable being risk and fee transparency and more recently Environmental, Social, and Governance (ESG for short). General Partners are taking notice of these calls too. A survey to general partners from Intertrust notes "Over half of GPs (63%) expect LPs to call for improved disclosure on risk exposures, fee structures (60%) and expense allocations (48%).” Consider for a moment the 25 largest private equity funds and ask: Do they make this list without flexibility and structure to produce data effectively for limited partners? The Wall Street Journal recently cited a study from the US SIF Foundation in which:
“At the end of 2019, about $17.1 trillion—roughly one-third of all assets under professional management in the U.S.—was being managed using some type of sustainable-investment strategy or by institutions that filed shareholder resolutions on ESG issues, according to the most recent data from the US SIF Foundation, a sustainable-investing trade group. That was a 42% increase from two years earlier, the group said.”
As ESG, and other calls for transparency continue to grow, so too will the need to increased efficiency in data capture, maintenance, and reporting.
Last and certainly not least is the argument around unstructured or raw data via ad hoc requests or dreaded portable document formats, more commonly PDFs. These are both the boon and bane of any recipient. The short-term benefit of easy-to-read quarterly reports, cashflow notice details, or excel summaries are all too often outweighed while frantically scanning through file folders in search of one key indicator or file to support a theory and appease irritable managers. With numerous reports around the record amount of dry power held by private capital managers, we simply cannot afford to leave these important points buried in documents.
Now that we have covered the trials and tribulations of data, let us get into some solutions. The first that comes to mind is to ask for help. As the French moralist Joseph Joubert states, “It is better to debate a question without settling it than to settle a question without debating it.” The journey of an asset owner or investment manager does not need to be shouldered alone. Countless consummate professionals within the data architecture and private capital industry strive to help, usually in the form of agile management consulting firms. The goal of these firms is to, “Deliver highly specialized engagements that scale quickly into full digital product implementation. They have the strategic chops to provide their clients with expert guidance, but they follow that up with the technical know-how to help clients put that guidance into action.”
The next solution to consider is the route of artificial intelligence. One line that stands out in this respect comes from KKR CIO Ed Brandman, “the secret sauce in the technology is in tagging data we take in.” AI is certainly not a new concept. This promise is a long time coming with the past resulting in a team of people scouring through raw data to catalog and collate. This model did not provide the results or cost efficiency to make long term investment viable, however, renewed interest has some expecting market size to reach USD 13.43 billion (insert Dr. Evil laugh) by 2027. Wider adoption and use of data element tagging will only serve to strengthen the ever-increasing reporting standards and alleviate common stakeholder stressors.
The last solution in this chain revolves around a change in the marketplace just recently introduced. That is a "whole office" or front-to-back mindset wherein workstream silos are removed leaving behind an integrated office with regards to data. Office functions in this environment allow agility and scalability so data needs may be met timely. This mindset must be met with openness from both asset owners and investment managers. This is not a kumbaya for all facets of data to integrate across the office and remove system security however, it is merely the nascent stages of a movement that will lead to better data integration in an ever-changing regulatory and reporting landscape.
As we have examined throughout this blog, private capital is ripe for continued development and interest. There is no shortage of resources to pull from to bridge the data gap. Unlike Dr. Jones, there is more at our disposal than a bag of sand to hold back the data boulder.