2025: PE’s digital golden year

According to a new report, by 2025, structured data exchange will be the norm, managers will be working via collaborative platforms, and Excel will be a thing of the past.

Citco Fund Services’ The Future of Private Equity Fund Administration 2025 report observed a robust uptick in digitisation in the last two years, driven by the need for automation and cyber security. As the digital transformation continues, the year 2025 will be “a time when the majority of [fund managers] would have digitised/data driven workflows.”

This prediction takes into account Preqin’s Special Report: The Future of Alternatives 2025 which forecasts private equity will hit $9trn in assets by 2025 - a figure that can only be achieved with strong digital infrastructures capable of handling such capital.

Citco believes the operating models of 2025 will be led by two main principles: data integrations and collaborative platforms.

Data integrations

Given the need for automation and cyber security, structured inputs are critical to enabling process automation. “Moving data exchange from insecure tools such as email, to encrypted processes is key to maintaining security,” Citco’s report says. “Managers must supply administrators with structured inputs and admins must provide managers with structured outputs.”

In a bid to assist fund managers and service providers with data extraction automation, Danielle Lawrence recently launched SaaS platform Freyda, whose mission is to Free Your Data. The platform applies deep learning and natural language processing to extract, normalise and connect data from documents to unlock portfolio insights. “This saves clients up to 90% of their costs and frees up their time to focus on high-value, high-impact work,” Lawrence told The Drawdown recently.

Citco’s report highlights one of the most important enablers of process automation will be golden record data, such as the record of a deal, a director, an expense or capital event, which is then fed downstream to all parties. “Everything will require more data points, attributes and ways of linking payments to deals, such as ESG ratings,” the report adds. “Each event will need more tagging and the ability to link through the systems will be key.”

But it’s not just technology providers which are helping to move private equity towards structured data exchange. Recognising the importance of ESG data collection, MUFG Investor Services partnered with MJ Hudson in April to launch a private markets ESG reporting solution. The system allows data to be collected in an automated way, with an overlay of ESG expertise from analysts, while being tailored to industry, investment and client requirements.

Collaborative platforms

The move to using shared tools and documents has already been accelerated during the last year with firms working remotely. Citco predicts by 2025, fund managers, lawyers, accountants and investors will be using a set of tools that digitise interactions, keeping track of who is working on what, the data input and the review status. These platforms will structure, authenticate and guide the process of creating golden data.

“Creating shared communication workspaces where only approved users can share messages, files and communications alleviates most of the issues with emails, while maintaining frictionless communication for all users,” says the report.

Examples of these tools include online subscription tools which structures the gathering of investor information and invoice management tools that extract data from PDFs and use it to power online approvals and payments.

In an effort to support fund managers with collecting investor data efficiently, Jersey Financial Services Commission announced last month that it is developing a shared KYC tool for the jurisdiction. The platform aims to enable users to verify customers’ identities while also reducing costs when taking on new clients and providing extra assurance around the quality of client processes.

Similarly, after its spinout of Apex last September, clearinghouse for KYC and investor onboarding, The ID Register, received a licence from Guernsey Financial Services Commission in February to carry on controlled investment business on the island. The status also allows fund managers to rely on the system’s approval as well as reduce risk for service providers. At the time, founder Tim Andrews explained the one-and-done solution aims to provide “an obvious advantage for investors, fund managers and service providers alike, especially in a post-pandemic world where technology underpins great service and efficiency.”

Addressing invoice management, legal fee tracker Apperio has been tackling the industry’s pain point around legal spend since its inception in 2013. The platform provides businesses and PE firms with complete visibility of their legal spend, allowing them to track billed and unbilled hours in real time, as well as run analytics and monitor law firm performance. “The ability to monitor spend and have access to fee data and analytics is at worst non-existent, at best manual,” explained the firm’s founder, Nicholas d’Adhemar back in 2018, around the time Apperio picked up $10m in a series A round led by Draper Esprit. “There is a huge opportunity to provide clarity to general counsels and gather accurate, real-time insights that enable better decision making and help reduce legal expenditure.”

Having also acknowledged the importance of using collaborative technology to create efficient processes, Swiss fund administrator Carnegie Fund Services is planning to expand its due diligence hub’s functionality to private equity, enabling professionals to not only securely share documents and information, but also access a visitor log to keep track of investor relationships. The functionality is believed to be rolled out in Q4 2021.

Exiting Excel

While private equity is well on its way with its digital transformation, the industry still heavily relies on Excel. Citco’s report expresses one clear message: for fund managers to move away from the dated Excel programme and wholeheartedly embrace these new proprietary technologies.

However, with more and more software providers claiming to be the best at solving targeted industry pain points, fund managers’ main challenge is now cutting through the noise of what works well versus what works with each firm’s current technology infrastructure without ending up with dozens of siloed platforms. According to Matt Le Noury, client services, private equity at Citco Fund Services (Guernsey), “As managers grow in size and complexity, the challenge of overseeing vendors increases.”

That said, Arcesium’s David Nable seconds this view. In a recent conversation with The Drawdown, the managing director of the financial technology and professional services firm said, “We think a better design approach is to provide the tools and products which allow a client to build a foundational enterprise management framework. There are thousands of data points relevant to a PE manager which need to be housed in one central place.”