This trend concerns all asset classes: private equity, private debt, real estate, hedge funds and natural resources...
The players in the private market have changed dramatically. The average company in this sector is now 60% larger than it was in 2016. As for the most important companies in this sector, they are larger than ever before. Eight of them have raised more than $50 billion over the past five years, compared with just one in 2016.
Private equity, a sector in the throes of change
The private equity market faces a number of specific challenges. Indeed, the operational complexity of existing players has increased due to several factors, such as :
- The creation of new asset classes,
- Investor interest in new geographical areas,
- Increasingly complex fund structures and investment vehicles,
- A wider variety of investors,
- Constantly changing regulations,
- More and more demanding and customized requests,
- Increased consideration of ESG criteria in deal sourcing and investment strategies.
Digital transformation needs
While the private market as a whole is still in the early stages of its digital maturity, major players are increasingly investing in digital and analytical solutions.
According to McKinsey, large multi-strategy fund managers with more than $10 billion in assets under management typically spend between $1 and $5 million a year on third-party software and solutions per asset class. Adding in spending on in-house capabilities, leading managers, fund administrators and institutional investors invest tens of millions of dollars a year. This need for digitalization has increased with Covid-19, which has generated new issues that have had to be urgently addressed.
It is now essential for alternative asset management players to build a high-quality digital infrastructure, as well as precise processes to ensure efficient and secure data management.
Market players are increasingly looking for tools to automate repetitive tasks such as accounting, booking and investment cash flow monitoring. In addition, the orchestration of front-office processes such as fund-raising or deal flow has made it necessary to use CRM-type tools to manage a database of contacts, deals and investors, and to accentuate internal collaboration on the various files.
Tightening regulatory constraints and increasing investor demands have prompted asset managers and servicers to automate reporting and invest in data processing and analysis to guarantee data quality and availability.
Customer experience is now also the key to differentiation in such a competitive market. We need to optimize service quality and facilitate theuser experience. One of the solutions that is increasingly emerging is the implementation of investor portals. This improves collaboration between investors and managers, and saves both parties a considerable amount of time, which now makes all the difference.
According to McKinsey, the efficiency gains from such initiatives are significant: cost savings of 4-7% and productivity increases of 10-15% have been observed.
Analytics solutions can play a key role in helping companies in the private equity market to maintain their efficiency as they evolve.
An ambitious digital transformation strategy
Implementing a digital transformation strategy is essential to help alternative investment players to :
- Achieve efficiency and effectiveness gains,
- Improve internal communication (between Front, Middle and Back Office) and external communication with investors, asset departments, auditors, etc,
- Better readability, quality and reliability of data,
- Automate certain time-consuming tasks, so you can spend more time analyzing high value-added tasks,
- Reduce operating costs,
- Make decisions faster and more reliable,
- Meet increasingly specific regulatory requirements,
- Serving increasingly demanding investors.
The digitization of the sector brings with it many challenges for companies:
- Make substantial investments in digital solutions,
- Strengthen the skills of our teams with rare talents,
- Design customized tools to meet very specific needs.
The benefits are fast becoming apparent. These initiatives simplify and optimize investment decision-making. Optimized data processing and increased efficiency significantly improve the productivity of the entire team.
Conclusion
Major trends in the digitalization of private equity players, such as the automation of processes and reporting, data security, data quality and the digitization of investor relations, call for qualified profiles who understand both data and the business of the private market. It's important that investment players surround themselves with the right skills torapidly develop and deploy a digital transformation roadmap.