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LPGP Connect’s 3rd Annual Private Equity event was held earlier this summer in London, bringing together CFOs, COOs, finance directors, compliance and risk professionals, and others to meet, mingle, and discuss the top global private equity trends affecting the market.
While at the conference, I received the opportunity to speak on stage with several industry peers. Our panel of private equity professionals discussed the top challenges of data analysis in the alternatives space, and how new innovations can exact change while also highlighting new challenges.
For a recap of the panel, here are three key takeaways my peers and I discussed.
“By tackling legacy data and process issues with the help of technology, GPs and LPs can transform from a human-driven organization to human and data-driven.”
There’s no doubt that technology has steadily been catching up with our data needs in the private fund sphere. However, even as technology advances and AI garners more excitement every day, my fellow panelists and I all agreed that even the best systems and data require human teams to interpret and act on the insights technology provides.
By tackling legacy data and process issues with the help of technology, GPs and LPs can transform from a human-driven organization to human and data-driven. Particularly in areas like venture capital that are more human and social focused, human perception and expertise might need to step in to factor in more qualitative elements and override certain data insights in order to make the right decisions.
“The risks that come from bad data are enormous, so much so that one GP panelist shared a recent experience with a large institutional LP that stated they would trade up to 50 basis points of performance for better data and more transparency.”
Enemy No. 1 of any data initiative is bad data, meaning that particular attention and resources should be paid to the process of data collection. Many firms are spending significant time on ensuring consistent data quality, especially as they seek to find efficient, accurate and repeatable ways to collect data from dozens or even hundreds of portfolio companies.
ESG data in particular can be fraught with false claims that require verification, but also need to reconcile differences in data sources. For example, vastly different ESG KPIs could apply to high-tech manufacturers and cattle farmers, but both could be feeding into the same data set as a GP looks to measure ESG impact across a full portfolio.
The risks that come from bad data are enormous and very top of mind for industry participants, so much so that one GP panelist shared a recent experience with a large institutional LP that stated they would trade up to 50 basis points of performance for better data and more transparency.
“These ad-hoc LP data requests (outside of routine quarterly investor reporting) often result in different investors having access to different amounts of information.”
In the alternative investments space, tension still exists between LPs seeking more data and transparency into their holdings and GPs’ willingness and ability to provide it. In fact, according to Allvue data, nearly a third of GPs name ad-hoc LP data requests as their biggest back-office operational challege. Still, most GPs keep up with providing these insights as best they can, but these ad-hoc LP data requests (outside of routine quarterly investor reporting) often result in different investors having access to different amounts of information.
On a broader basis, institutions and countries are increasingly open to sharing data when they can achieve a common set of goals and interests, such as fighting climate change. For example, Norway International Climate and Forests Initiative (NICFI) makes satellite data shared across 97 countries and over 10,000 users available for free for non-commercial use. As ESG’s influence continues growing, especially in Europe, we could see similar use cases of publicly available ESG data guiding private equity decisions – and even more public reporting of private equity ESG progress.
These themes we spent time on at LPGP Connect in London reflect the conversations happening daily at Allvue – with our teammates, customers, and partners. We believe that collecting and extracting insights from your accounting and fund performance data should be easily accessible for your human teams with the support of capable, cloud-based technology.
Our product suites, from Fund Accounting to Fund Performance and Portfolio Monitoring to Investor Portal, offer repeatable, customizable processes for capturing all key private investment data, pulling value and context out of the complexity, and sharing those insights with all necessary stakeholders.
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At Allvue, we’re committed to harnessing technology and expertise to tackle the biggest challenges facing the private capital space. Our Resources hub, offering blog articles, whitepapers, case studies, videos, and more, shares industry best practices and reflects the experience and learnings of top Allvue experts and our partners motivated to see this industry continue to grow and thrive.
Our goal is to provide guidance as well as food for thought for anyone interested in the private equity, venture capital, private debt, and public credit spaces – whether you’re learning the fundamentals or getting ready to raise your fifth fund. Many of our articles contain links to trusted third-party resources to support our takes, and all our content is regularly reviewed and updated to keep current with the fast pace of alternative investment innovation.