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Transparency in Private Equity: Driving through the numbers

‘Transparency’ is the new rhetoric of the digital age, and information its currency. As with any commodity, its intrinsic value is contingent on it not being too freely available. Once information becomes public, its value swiftly dissipates.

Almost every day another breach of confidential information is lauded across the tabloids. Technology has finally broken down barriers that once separated the ‘have’s from the ‘have not’s, and the message is resoundingly clear. Information once purloined and set free into the ether, is akin to putting the proverbial genie back into the bottle. Reputational risk has never been so easily served.

However, viewed through a different lens, transparency is what Asset Managers need most. For them to have a finger on the pulse of their portfolio of companies, and then to react with the same rapidity is the ‘secret sauce’ to unlocking alpha – the additional value they create.

Transparency can be a powerful force for change if wielded correctly, even in the traditionally opaque world of private equity.

The perfect storm of the cloud

Private Equity has come of age. It has matured from its early days sequestered in the financial wilderness. Financial leverage is no longer a key differentiator; creating value from operational transformation is. And in todays’ connected world that implies knowing your portfolio company metrics in real time. Private equity is quintessentially about managing information. And those that do so better than their peers will not only earn a sustainable advantage, but one that will carry its weight in gold (or whatever commodity you currently favor!)

If not curated, and managed, data becomes stale and worthless – but faster, cheaper computing power and the cloud has brought information to life. Solutions are quick to deploy, built around intuitive interfaces, and their insightful analytics offer up infinite possibilities. Data is now mobile, on demand – letting today’s busy General Partner monitor the wellbeing of their portfolio of companies from anywhere, anytime.

A decade ago it would have been unheard of for a private equity firm to let go of its most closely guarded secrets, demanding on-premises servers to host their data. Cloud security however has gone from good to great, with most hacks exploiting non-technical chinks in firms’ information security protocols.

Cloud technology coupled with agile software development methodologies proffer multiple benefits: software does not need to be installed making it simple and quick to roll-out, new updates leveraging the full learnings of the network are deployed to everyone with no recourse to the IT department, and subscription pricing models mean you only pay for what you use – even infrastructure.

All with a single click

One of the best ways in which technology serves its new masters is through automation – even across the last mile of reporting. While Excel will always be the go-to tool for finance analysts, their intricate models replete with complicated macros and enigmatic formulas only serve to exponentially increase the potential for errors. And to err is human.

Automation provides for a fast close, real-time analytics and the onward dissemination of information. The technology and solutions are available, and do simply that. Simply.

Most private equity firms will invest millions in due diligence, to know whether they should invest in a potential transaction. They need to focus that same process on themselves and put their existing systems and processes under the same rigor.

The returns from investing in technology bring great rewards. It is just not enough to do the right thing, nor to do the thing right. But to do it faster and better than your peers.

Technology has become platform and device agnostic. Newer and more agile solutions can be implemented for a fraction of their perceived cost, accelerating the ROI (Return On Investment).

Private equity  firms – of all sizes – can take advantage and dip their toes in the water without having to invest in large, complex legacy systems. The beauty is that most of these solutions will even talk with their existing legacy systems.

The roadmap for Private Equity firms is clear. Transparent even.