Operating partners, CFOs, and Investment Directors have historically leaned on manual processes and spreadsheets to evaluate the performance of their private equity portfolio.
Choosing a solution to monitor your private equity portfolio is not an easy or quick task and the wrong decision could be a costly investment so making the right choice is vital.
When deciding on any new portfolio monitoring software there are, we feel, 15 things you need to consider when choosing the right solution.
Getting buy-in from all users is the first step in introducing any new digital technology within your organisation. According to Alphaweek "part of the reason for the lack of adoption of digital transformation strategies could be because it means different things to different people. For some, they hear the phrase ‘digital transformation’ and think that it simply means migrating technology applications to the cloud”.
The best portfolio monitoring software will be used by both the GP and members of each portfolio company. A software tool is only as good as its user base, and the same goes for a portfolio monitoring platform. With so many stakeholders involved, it is important to think about the value offered at each level.
If the answer to these questions is yes, then you are on the way to users relying on the tool and realising added value.
Both a benefit and a key factor in choosing any software solution is how well it fits into your current workflow. You want a system that can increase efficiency across your teams, internally and externally. Platform’s that are modelled on existing private equity workflows will be easy to adopt and easier to onboard.
An added benefit to consider is a system that not only understands the needs of each user but also aligns all the stakeholders with the same objectives and priorities.
The best type of software solution is one that can be customised to your needs, seamlessly fitting in with not just your current requirements, but one that can be easily adapted to meet the constant and evolving changes to how you evaluate your portfolio.
Investment strategies, personnel and requirements tend to change over time, and partnering with a solution that evolves with you will bring long term value and stability.
Private equity portfolio managers need clear insight into a wide range of metrics from specific company performance to IRR and multiples calculations. This level of visibility is essential for effective long-term value creation planning and reporting. Some of the best private equity portfolio monitoring solutions provide accurate real-time reporting.
Depending on the provider there will be different commercials structures. Most products now are based on an annual fee. It will be important to understand how the commercials are organised, by AUM or by Asset, is there a managed service or implementation fee?
Are there going to be on-going costs over the course of the vendor relationship or is support included?
Depending on the overall structure of the software platform, some costs may be borne by the portfolio company. The most cost-effective route will always be to find a vendor that can meet your long-term needs.
Reviewing your current solutions and what you need is a crucial part of the process.
Answers to these questions will help you fine tune your vendor selection.
Data has always been at the heart of evaluating and monitoring a private equity portfolio. Even the most basic valuation model relies on consistent and accurate reporting from a fund’s assets.
The right solution needs to not just access your existing data but capture deeper market data; you need data you can trust. Accurate and timely financial data is vital to present reliable, concise quarterly reports to stakeholders and shareholders.
Solutions that can directly access the accounting system of your portfolio companies and flow through to the GP level feeding into your stakeholder and investor reports should be high on your list of considerations.
A solution that just monitors one fund maybe all that you need for now. But it is important to consider future needs as your portfolio grows and evolves. A solution that you can use across your whole portfolio to align all the various stakeholders could be a great advantage and should be an important consideration to help future-proof your portfolio monitoring.
How will the solution help you with your quarterly Board Reporting? Adoption of software for board reporting is still in its infancy, indeed, a recent paper from Nasdaq and Stanton Chase found that just over a quarter of the companies surveyed confirmed their boards utilise digital services for board and collaboration software.
Software that can automatically integrate all the information you need to produce your Board and Investor reports will save you a great deal of time ahead of your investor meetings.
According to Forbes "there's been a lot of talk about environmental, social and governance (ESG) issues dealing with hedge funds, but these topics are spilling over into private equity as well".
ESG is now front of mind for all Private Equity Managers. It is worth considering solutions that can help you control and manage your ESG strategy and improvement actions and initiatives across your portfolio and ensure ESG is firmly embedded into your investments’ value creation planning.
Before buying a portfolio management tool, ensure the systems you evaluate are intuitive and user friendly. If you and your team need extensive training in order to get comfortable with the platform, you can assume that you may be late with your financial reporting.
To ensure your onboarding is not only efficient but also sets you up for success, confirm you are working with a dedicated consultant who can show you the best practices and configure the tool to the needs of your fund.
Having a trusted advisor to partner with you during the implementation is crucial so your team can start using the tool as soon as possible and begin realising its value.
No matter how well the solution is developed, technical problems may occur now or then. If you don’t want to have unpredicted costs, make sure the vendor whose software you are interested in offers adequate customer support to solve any issues or problems that do arise. Also consider what online training and resources the vendor provides.
Mobile is a given these days. With remote working now commonplace you need to be able to access your investments’ progress on the move at any time. Don’t forget to check with the vendor if they have a mobile version or app available for all devices.
Finally, think about how a platform will help you manage your portfolio in a more efficient and better way.
You need software that can help you track and monitor the value creation plans for each of your portfolio companies, maximise the risk-adjusted value of the portfolio and help you create risk response plans.
Investigate whether the tool can get you an objective view of the risks to achieving a successful return for your portfolio companies and give you an insight into how much value will be created by your value creation initiatives and if the chosen actions can maximise that value.
Today’s private equity managers are faced with greater competition for deals and massive market interruptions like COVID-19. Those who are continuing to create value through it all will depend on an analytical approach, a robust framework and a solution that is consistent and reliable.
Juan Manrique, Founder of UNTAP by EXM comments "our customers have realised this year they need to do something different and need closer control of assets and better communication with their investment teams and by employing more advanced software and systems to do this will help them steer a clearer path through 2021".
Choosing the right software to monitor the performance of your private equity portfolio of investments has never been more critical.
If you are considering choosing a private portfolio monitoring solution why not give us a call, see how we can help.
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