Is culture the key to cracking private equity’s data puzzle?

In the evolving landscape of alternative assets, data is the golden ticket for general partners (GPs) – equipping them with valuable insights to make savvy investment decisions and fine-tune operational efficiencies.

Projections indicate that by 2027, more than half of all global asset management revenues will stem from alternative assets. Amid market uncertainties, the demand for alternative investments persists, fuelled by asset owners looking to diversify holdings, pursue alpha through private market ventures, and hedge against inflation. Against the backdrop of ongoing uncertainty driven by escalating debt costs, market volatility, and inflationary pressures, the search for stable returns and alpha/growth is demanding.

However, the sheer volume of data that organisations are grappling with is a major pain point for private equity firms. Many find themselves struggling to consolidate vast quantities of data from disparate sources. The challenging market conditions that firms are operating in means alternative investment managers (AIMs) must maximise the use of their assets, capabilities, and intellectual property. In essence, GPs cannot afford to sideline data transparency, quality, and accessibility.

More data, more demands 

Data is often depicted as the oxygen of an organisation. It serves as a vital corporate resource that generates information and knowledge, which in turn is vital to fuel insights necessary for informed decision-making. For data to truly serve its purpose, it must be ‘healthy’, meaning it should be accurate, consistent, accessible, and comprehensible across the company. Lacking any one of these attributes, it becomes ineffective within analysis and decision processes, ultimately affecting both internal and external stakeholders adversely.

GPs and limited partners (LPs) handle huge amounts of complex data, sourced from a patchwork of spreadsheets, emails, and files. Encompassing structured and unstructured, internal and external, this influx of data creates intricate and varied data networks within most private equity firms. Such complexity imposes a considerable administrative load on fund managers, shifting focus and resources away from activities that generate revenue.

As the demand for information grows, both from internal sources and investors, fund managers must begin to rethink their data management. To establish a comprehensive data management approach, both time and money must be invested to reconstruct outdated legacy infrastructures. Technology solutions can prove a useful tool in this process, freeing up staff time by reducing manual efforts, but are not a universal answer to the problem. Ultimately, investments in technology become essentially redundant if individuals retain data on personal systems without melding into enterprise data systems.

Transparency can build trust in data

Technology is only one consideration within the data management dilemma; organisational culture, mindset, and behaviour are equally important aspects of the issue. When people do not trust enterprise data, the knee-jerk reaction is to make their own data silos, reverting to form and using personal Excel spreadsheets. The enterprise data is then left incomplete and unverified, fuelling the distrust that first led individuals to make their data silos. The first step to overcome the data management dilemma must be to instil trust in data so that people do not fall into this chicken-and-egg circle.

Accuracy and quality can be at risk as the volume of data continues to rise. Significant volumes of data are difficult to analyse and process for fund managers, while manual processes and siloed data further compound the problem. Siloed data also represents significant regulatory compliance risks, as well as slowing down the production of consistent and quality data, giving rise to potential misuse of sensitive data.

Another challenge is the growing consideration for the investor experience while accessing data. Not only are clients reaching out more often for up-to-date information, there are also asking after other metrics such as ESG data. These frequent, complex requests can often result in poor fulfilment rates, especially from smaller companies that struggle to meaningfully respond.

Critical to building trust is transparency. Both a cultural shift and appropriate technology will be required to replace the mindset of those who wish to stick with their usual methods. Of course, it is easier said than done to shift the mindset of an organisation. However, at its core, businesses must establish and follow comprehensive data management and governance processes so that all data is secured within the required repository, improving access to information and increasing transparency.

Trust is at the core of effective data management, and businesses must treat it as a two-way street. Technology is a crucial aspect of the data dilemma, but organisational efficiency can be hugely improved by ensuring a central repository is consistently fed clean, accurate data. Trusting this repository allows GPs to quickly access data and make faster decisions, generate essential insights, and respond faster to unexpected client requests.

Infrastructure is important, but mindset and culture are equally vital to help perfect your data management approach. This behavioural change must be demonstrated by executive leadership to encourage the wider business to follow suit. Professionals in fields like investment and investor relations must take responsibility for the data they generate and utilise - understanding that issues with data are not solely technological problems, but rather, they have a responsibility to maintain the quality of their own data. Every member of the workforce must acknowledge the principles of good data governance to reduce the risk which comes from isolated work practices, which so often lead to siloed data sources. With a unified approach, companies can be assured that investments in new technologies will be effectively utilised.