Are fund managers that fail to embrace digital transformation doomed to fail? 

In Private Equity specifically, the market has become tougher and more competitive for a number of reasons. For instance, globally, fund managers are sitting on $2 trillion worth of dry powder. More capital is being spent than ever before, as M&A has recovered since the second half of 2020, and the commercial environment has become more clear following the pandemic. 

In order to make the most of the unprecedented opportunity, fund managers have looked to digital transformation to improve their business processes on the internal and external levels. Internally, they’ve looked towards streamlining and enhancing finance operations, record keeping, regulatory reporting, financial planning, consolidation, and forecasting. Externally, D&A and insights have been leveraged to improve portfolio acquisition decision-making and driving revenue growth, supporting commercial growth. 

Private Equity Firms that have embraced digital technologies have seen improvements in a range of processes. For instance: 

  • The use of D&A prior to due diligence has been known to increase deal speed and improve accuracy in deal pricing. What-if scenario planning and growth analyses on financials enables firms to develop growth models and plan strategically for future growth and newly acquired portfolio companies. 
  • Partners have access to critical information in real-time, allowing for quick and agile reporting and scenario analysis. 
  • Manual operations such as fund accounting, trade and settlement, supply chain, and CRM can be streamlined and automated, driving higher value activity.
  • Compliance irrespective of jurisdiction is made simpler and more cost effective, streamlining regulatory reporting, and making client onboarding more efficient. 
  • In-house digital capabilities allow fund managers to enhance the target companies they invest in, selling them for a profit. 
  • Digitisation makes judging business models, market positions, historical performance, cash flows, and capital expenditures easier, making identifying targets that much easier.
  • Venture capital processes are made simpler

Digital Transformation offers firms a unique opportunity to drive efficiency and profitability. 

Take financial consolidation for example. Traditionally, a fund manager would get monthly management reports from their portfolio companies and then decipher manually and with spreadsheets about who is and isn’t performing as they should, as well as where and how performance can be enhanced. This could include:

  • Inventory
  • Production
  • Ordering and purchasing data
  • Sales statistics
  • And much more.

Compiling that information and trying to interpret such a large amount of data is time consuming and challenging for a fund manager ill-equipped for it. Digitising this process means linking all your portfolio company systems together, feeding critical business information into a single system. This allows you to monitor this in real time, and to support quick and agile responses to market conditions, and to act on more accurate forecasts and budgets. 

Improving compliance, regulatory reporting, and communications

Developing digital capabilities is an increasingly important focus for governance in fund management. Technology makes the regulatory reporting process, and communicating with stakeholders a more streamlined and efficient process. Digital transformation helps firms:

  • Bring critical business information from multiple portfolio companies
  • Leveraging Artificial Intelligence to get better insights
  • Interpret data
  • Complete and file mandatory forms. 

Digital Transformation is especially important for growing fund managers with a global portfolio. Having to take into consideration laws and regulatory requirements from multiple jurisdictions complicates the process, and digitisation streamlines the process significantly. Data & Analytics, Automation, and AI can all be leveraged to make onboarding new acquisitions faster and more efficient.

How are firms benefiting from digital transformation?

Increased regulatory scrutiny - the Private Equity sector is a rapidly growing sector, driven by high returns and low interest rates. The increased interest from institutional investors has followed with higher scrutiny from regulators. Fund managers have been under pressure to ‘institutionalize’ their technology and operating models to meet greater demands. Digital Transformation means higher visibility of data, lower costs, and a higher chance at profits. 

Until recently, the private equity sector has been reluctant to embrace digitisation, out of the belief of its potential to disrupt business and deal flow. Now, however, as deal flow has evolved, many fund managers understand that maintaining a competitive edge .

After acquiring a portfolio company, analytics capabilities opens the door to mining greater amounts of data to drive productivity and efficiency. Value capture allows you to drill down into the details, showing you exactly what particular processes need improvement. 

Following acquisition, many fund managers are arming their portfolio companies with extensive digital prowess, creating value by improving its processes, expanding and upgrading their product and service lines. This enables them to compete better against other businesses in their sectors. 

How are Finance Teams benefiting specifically?

More and more firms are moving towards one-stop shops for their finance teams to reflect their ever evolving priorities. The Finance Teams of today require Agile Reporting, Predictable Outcomes, Minimised risk, Quick Financial Close, Automation, Forecasting, and Consolidation. As a result, a package approach to technology has become more attractive to firms and investors.

It's down to these trends that we set out to build the INSIGHT for Finance Departments package, as well as our other cost-effective and rapidly deployable packaged solutions, giving you:

  • Transactional Accounting
  • Budgeting
  • Planning
  • Forecasting
  • Consolidation
  • Predictive Analytics

All powered by best-in-class SAP-cloud technology. 

What this means is our customers can consume this on an on-demand basis, and scale this as their business grows. It’s about empowering finance department teams, and their people, to become more agile and responsive, and as such hopefully make their organisations more resilient to the ever-changing business environment we face currently.

Final Thoughts 

In 2020, the pandemic presented an enormous challenge for the investment management industry - but the industry adapted. The volatile commercial environment, personal hardship for the workforce, and the commitment to clients will lead to a stronger, more digitally capable Investment industry by the end of the year.