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Private equity fund managers have collect data, store and manage it, analyze it, and report on it. And they have to do this for an ever increasing amount in a way that allows them to securely but quickly delivery it to a growing variety of stakeholders.
“The biggest challenge facing a GP today is data.”
– Mike Trinkaus, CEO and Co-Founder, 4Pines Fund Services
Despite these growing challenges, managers often turn to Excel to help handle their data needs. But Excel comes with significant risks that can jeopardize the accuracy, security, and efficiency of a number of GP workflows, but especially for the complex and essential tasks related to private equity accounting.
In this article, we explain the risks that come with utilizing Excel for fund accounting purposes and what GPs can do to mitigate them.
GPs increasingly have to share back-office data across a wide variety of internal and external stakeholders. For back-office teams that are solely or primarily reliant on Excel, this creates a challenge and opens the door to risk.
Specifically, with Excel, teams will likely be unable to:
A frequently used workaround for these Excel for the web shortcomings is implementing version control with the desktop app (JanuryReport_v1.xls, JanuaryReport_v2.xls, etc.) and emailing back and forth between users. But, as anyone who has gone down this road knows, this quickly and inevitably leads to data management chaos. It becomes impossible to track who updated what, when, and where.
Quality control and data integrity are also major issues inherent in any spreadsheet-based accounting and private equity reporting process, especially as the amount of data grows. The lack of a “single source of truth” across data sets inevitably results in errors that are difficult to identify and rectify.
These challenges are readily apparent amid the abundant information requests limited partners have of their managers, requesting updates on potential cashflows, lines of credit, portfolio company statuses, and more. Institutions and individuals alike are looking for as much clarity as possible from their private capital managers, and providing it isn’t an easy task when data is stored in disparate spreadsheets or systems.
Private equity data security is another important consideration when looking at operational risks in the current environment. The more email is used to share information, the greater the odds of exposure to bad actors looking for vulnerabilities, and the private capital industry is certainly not immune.
Sharing sensitive data – tax ID numbers, bank account information, and portfolio company financials – over unsecured “networks” such as email, exposes both GPs and LPs to immeasurable risks, should such information fall into the wrong hands.
For GPs that use a fund administrator, there can be an enormous amount of information passed back and forth from GP to admin, generating both collaboration and security challenges.
A potential workaround to the traditional GP/admin model is what’s called a co-sourcing model. Under this model, the GP owns or hosts the fund accounting and reporting technology (including the data), and the admin securely logs into the GP’s software system to support their assigned accounting responsibilities.
Co-sourcing has two primary benefits:
As GPs data management challenges continue to grow, it will be vital to leverage software solutions that empower collaboration, streamline data workflows, and create secure, de-risked environments.
Allvue helps fund managers grow their fund count while maintaining their head count. Allvue sets itself apart from the competition by:
Moving to Allvue’s industry-leading platform provides innumerable benefits to fund managers who are struggling to keep pace while using spreadsheets to support their back office.
As one Allvue client stated: “I couldn’t imagine how we could have worked through the current situation with the 8 to 10 spreadsheets we were using a few years ago.”
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