Why technology is essential for private equity managers
When it comes to unlocking value, it is no surprise private equity firms are turning to data solutions, technology providers and third-party experts to leverage the benefits of cutting-edge tools.
The concepts of ‘analytics’ and ‘big data” were once reserved for supercomputers and the exclusivity of firms with the biggest budgets. Today, however, these approaches have become expected functions for financial professionals and institutions everywhere. As the technology continues to develop, so too has its potential uses, and private equity firms increasingly need to stay on top of the innovation curve.
Research by KPMG in 2018 found that most private equity firms were in the “awareness-raising” phase of their digital transformation journeys. Four years on, the need to implement tech solutions is more pressing than ever.
There has been exponential growth in the volume of data available to private equity firms. Between 2015 and 2020, the amount of data created by an increasingly online population rose by 281%, according to International Data Corporation (IDC). By 2024, this number is expected to increase by another 150%.
For private equity firms, more data translates into more opportunities to develop insights, extrapolate trends and identify deals. And that can be the difference between success and failure.
According to EY, 46% of private equity investors view having access to meaningful data as the biggest challenge during an acquisition, while 44% cite a lack of reliable information as being the most significant factor that could result in an investor reducing its offer or walking away altogether.
Seizing the opportunity
To take advantage of this, firms must either develop or gain access to the technology, expertise and scalability required to handle vast amounts of data.
This has led to more firms calling on third-party services providers, particularly within data management, analysis and reporting – areas that require substantial skills and expertise.
As in-house expectations of what can be accomplished with data increase, so too do the expectations of investors. Increasingly, they are calling for full transparency, especially on factors such as risk management and contextual market data. Coinciding with this has been the rise of ESG, further contributing to the complexity of the metrics investors are demanding transparency on.
In early 2022, global limited and general partners, representing $8.7 trillion in AUM, alongside more than 1,400 private companies, committed to a collaborative ESG reporting system. This is indicative of the growing urgency to bolster data practices and expertise within the sector.
Yet these opportunities come at a time when digital transformation is presenting challenges to private equity firms. From finding skilled staff outside of key global locations, to a lack of international regulatory knowledge, remaining best in class necessitates a drastic in-house overhaul. Yet by leveraging a full set of services from a single provider, Apex’s customers have been able to align ambitions with outcomes.
A recent Apex poll of asset managers found 62% view having access to leading technologies as being the most immediate benefit of seeking third-party support. This is no great surprise given the transformational power that innovative pieces of tech can have. As the volume of data available continues to scale up, so does the need to have instantly expandable staffing, a factor that would benefit 17% of asset managers.
Having global compliance knowledge and fewer vendors to manage were also identified as key benefits that can instantly impact a business.
Increasingly, integrated technology is becoming central to successful operations, bringing benefits across a range of functional areas, all under the umbrella of a single-source provider. Conversely, poorly integrated legacy technology stacks simply cannot perform many of the functions that investors are calling for. From only outputting basic information to completing pieces of analysis behind competitors, out-of-date and non-compatible tech stacks are impeding on opportunities to deliver positive outcomes.
By leveraging integrated technology and expertise, a single-source provider, such as Apex Group, can deliver the tools to help achieve success.
Over three years, Apex Group’s customers were able to make savings of around $876,000 by leveraging technology. This efficiency not only came through reduced expenses on license fees, but implementation and ongoing management of the technology stack as well. Additionally, businesses were able to achieve an estimated average saving of four to five full-time staff per fund by working with Apex Group. This generated a saving of more than $3,890,000 for the average organisation over three years.
Evident here is the role individual elements can play in the overall success of a business. Our new report, the Total Economic Impact™ of Apex Group, explores this process in detail, outlining how support can be offered across the full value chain. Produced by Forrester Consulting, the report hears from our customers on the outcomes they have experienced since working with Apex Group, including how technology can save costs and future proof a business.