Portfolio monitoring is itself a foundational element of any successful private equity business. But what are the core tenets of an effective, technology-enabled portfolio monitoring program?

Taking a leaf out of Maslow’s Hierarchy of Needs, which orders human needs in a hierarchical model from fundamental to increasingly superfluous, one can order and prioritize the features of a portfolio monitoring software starting from the basic and foundational to the increasingly sophisticated ones. In this article, we’ve done just that: bifurcated the portfolio monitoring needs of the average private equity firm or fund manager into two categories.

This list should be useful when discussing the firm’s technology needs with each of its stakeholders who will rely on the portfolio monitoring technology that is chosen. It will outline what is possible when a technology platform is selected and implemented at your firm.
Foundational Needs for Portfolio Monitoring Technology

“What mission-critical and baseline features can we expect from our portfolio monitoring technology in the short term?”

  • Firms need the ability to receive data from various sources in the most flexible way possible, all-the-while ensuring data quality and integrity (for instance, Excel spreadsheet extraction, automated file reading from emails, direct data entry etc).
  • Firms need a process for validating data, especially some crucial numbers like EBITDA, allowing the supervision of the fund financial director, controller, and/or other stakeholders.
  • Firms need a powerful representational/visualisation layer to help analyse data and compile insightful business intelligence reports.
  • Firms need an efficient way to produce reports to serve the information requests of various internal and external audiences.
  • Firms need flexible data models that allow for quick interrogation of proprietary data to produce ad-hoc reports and update for investors and other stakeholders.

A portfolio monitoring technology platform that doesn’t address all these requirements is not satisfying the basic needs of a GP. If you have a portfolio monitoring technology platform that doesn’t meet the above foundation needs, it’s likely built on old frameworks which don’t leverage the opportunity that newer data technologies are now offered.

The Full Potential of Portfolio Monitoring Technology

“What are the more sophisticated technology features to look for that will be important for GPs and valuable to our stakeholders in the longer term?”

Ask any private equity investor and they’ll tell you that satisfying the above list of needs is not enough. A portfolio monitoring technology platform that is built for purpose should also be forward-looking and able to adapt the firm’s evolving and growing needs.

In the words of hockey legend Wayne Gretzky “I don’t skate where the puck is. I skate where the puck is going to be.” Following Gretzky’s philosophy, the evaluation of a portfolio monitoring technology platform should look forward and anticipate more, as well.

  • Firms need to monitor value creation. Increased operational involvement by GPs is becoming the norm, requiring an active role by Operating Partners but also technology solutions to support the tracking and control of value creation initiatives. This should include results achieved as well as action/progress for strategic projects.
  • Firms need reporting on environmental, social, and corporate governance (ESG) data and actions. Evolving reporting requirements and the global effort towards carbon emission reduction mean that modern portfolio monitoring technology platforms need to account for ESG-related data. These systems should be able to report on the format of targets and objectives, allow for visibility and control of the actual investments, and showcase projects focused on achieving the ESG improvements.
  • Firms need robust data models that are ready for deeper AI-based analysis. Most GPs at present do not really have a clear data strategy. The vast amount of data that is created in a private equity portfolio over a few years, including financial, operational and ESG, represents a huge opportunity and an asset for the GP that can analysed it properly and achieve real insight. Any portfolio monitoring technology worth considering will take these robust data needs into account.

 Whether your firm is looking to establish foundational portfolio monitoring best practices, elevate portfolio monitoring to a more sophisticated place, or replace the program all together, contact us today. Our team of professionals has the requisite experience and knowledge your firm needs to address its needs and improve its portfolio monitoring technology stack.


Comments (1)