Unlocking the potential of data in private equity

Businesses from a broad range of sectors have begun to realise the value of the data they hold. Data has been described as the new oil, the world’s most valuable resource, but the true value of data can only be realised if it is used and handled in the right way.

As recently as five to ten years ago, organisations that employed a Chief Data Officer (CDO) focused the role on data stewardship and protection, with little consideration given to the strategic benefits of using that data to its full potential. However, the role has evolved into something new, with strategically aware and technically adapt people being hired to take a place in the boardroom and propel the business forward using the power of data.

The role of the CDO in today’s market is multifaceted. From improving the data infrastructure of the organisation, to investigating now data analytics and business intelligence can be implemented to improve core business functions, the CDO is tasked with making data an integral part of the overall strategy. There is capability for data to boost performance across the business, and the CDO holds to keys to unlocking this potential.

The role of the CDO in Private Equity

We have seen an increasing number of private equity firms are employing CDOs, tasked with developing and managing a comprehensive analytics strategy. Their job is to prioritise the leveraging of data and information to improve efficiencies and enhance client services.

The huge amounts of data held by private equity firms makes a clearly defined data strategy an absolute necessity, and the outcomes can be used to improve efficiencies within the firm as well as identifying opportunities within the portfolio. Yet many firms are still reliant on multiple separate data systems that make identifying patterns very time-consuming, and in some cases impossible.

CDOs of private equity firms must focus on integrating data flows and enhancing data quality, while exploring opportunities to leverage the huge amount of data available to them as an asset. Used correctly and with the right business intelligence solutions, this data can both deliver insights to benefit the firm’s customers and predict the needs of the market.

Improve data practices or risk being left behind

Data and the insights on offer are becoming integral tools, whether it be to identify and analyse deal opportunities, monitor and improve portfolio companies, or report performance to investors. Even to those on the outside looking in, it’s clear to see that the firms utilising their data to its maximum potential have gained a significant competitive advantage. If firms are not yet viewing their data as an asset that can enrich the way they work, they are risking their future.

Part of the struggle in some private equity firms is in data quality and consistency. Many acknowledge that their industry has lagged behind other sectors in its approach to technology and digitalisation. There may be practical reasons for this. For one thing, some PE firms operate at ‘low velocity’, typically concluding a handful of deals a year. That makes the costs more difficult to justify, especially when the focus is on deal origination.

To counter this argument, the private equity CDO must look at the wider picture. LPs increasingly want information served to them digitally. Understandably so, with multiple investment types and numerous investment managers, in order to properly assess how each is performing, information needs to be aggregated before it can be interrogated. In this instance, investment into a better data strategy could have a direct impact on the future returns of the firm.

GPs are at varying stages when it comes to how sophisticated they are when reporting. Some continue to use spreadsheets and PDF documents, others use portals and industry-specific software systems, while a few of the larger and more advanced houses have built their own data warehouses and systems, which enable almost instant reporting in any format.

However, there will come a time, soon, where those GPs relying on spreadsheets and PDFs will become obsolete; where investors will no longer commit to funds simply because the process of dealing with that manager over the life of the fund is too burdensome.

What is expected is effective governance of data, sensible adoption of well-suited products and tools, and robust integration of systems without manual inputs or processes.

Business intelligence dashboards for private equity firms

TiG is at the forefront of data analytics technology, building systems that can process huge quantities of data and help identify patterns that could determine the next big win. Our gateway solution for data analytics is called Octopus, and can be implemented for just £20k. For more information download the factsheet or contact us.

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