The growing need for automation and technology in private equity


Financier Worldwide Magazine

September 2017 Issue

Even with all the technology available in today’s world, many private equity (PE) firms still maintain vital data using manual processes. Specifically, they input information by hand in spreadsheets, documents and other forms of media. These physical processes often create resource and time-related challenges for PE managers in areas such as accounting, marketing, investor relations and compliance. At the same time, these managers face burgeoning regulatory reporting requirements and increasing information demands from limited partners.

Often tasks such as fulfilling limited partner requests or obtaining information to complete filings require referencing or gathering information from numerous data sources. In situations where data is maintained manually and segregated across multiple departments, completing these tasks and meeting regular reporting demands has become increasingly difficult for PE firms. The manual approach can also create inefficiencies and result in inaccurate, inconsistent reporting.

Faced with these prospective issues, many PE firms are adopting or thinking about adopting technology solutions to enhance efficiency and reduce the time burden of information requests and reporting requirements. In May 2017, a panel at the Private Equity International Private Fund Compliance Forum surveyed its audience, asking, among other things, some relevant questions on this topic. The survey results showed that 48 percent of attendees considered data management an operational challenge and that 64 percent plan to prioritise process automation and system improvements over the next year.

Data management systems can alleviate the increased strain on resources and allow PE firms to better manage regulatory and compliance requirements. To satisfy these requirements, among other activities, compliance departments need to monitor limited partnership agreements and side letter provisions. The latter can be heavily negotiated with individual limited partners and include substantial additional requirements that need to be watched continuously. In this respect, firms can use automated systems to generate threshold alerts and other useful reports.

As another example, regulators are increasingly looking to collect registrant information via regulatory filings. To meet this demand and complete filings correctly, compliance departments must be able to comprehensively track all information related to a firm’s private funds. This data includes myriad details on alternative investment vehicles, co-investment vehicles, holding companies or other entities that can be part of a fund’s structure. Data management systems can be very useful in this respect. They can also benefit investment professionals by enabling them to track deals efficiently through the due diligence process, run thorough conflict checks, and review ongoing financial reporting and other inputs from potential and current portfolio companies.

The ability to better manage data with technological solutions will also ease and accelerate accounting and finance tasks such as valuation, expense allocations, fee calculations and performance reporting, all of which are hot topics for regulatory scrutiny right now. We are finding that certain PE firms have difficulty managing the valuation inputs and outputs for their portfolio company investments and fund valuations. This problem can and does arise in cases where a firm’s information is stored in various places and maintained by different teams and thus is not always easily accessible when needed for reporting or responding to requests.

In these situations, employees spend valuable time chasing down information for each period and it may take multiple employees to complete a task. Similarly, accounting departments can get bogged down with allocating expenses and calculating management fees and carried interest because the required information is not readily accessible. Worse, if the accounting information is incorrect, fund performance calculations can be affected and lead to inaccurate or inconsistent information being used in investor reporting and regulatory filings, such as the Form PF. Data management systems can alleviate both of these issues.

And finally, technology can be used to better manage the limited partner information issues mentioned earlier. Establishing a secure system to house limited partner information will enable a firm to securely maintain the sensitive information obtained during the subscription process and also enable more efficient onboarding. For example, know your customer (KYC)/anti-money laundering (AML) checks can be performed and documented in these systems. Then, after an investor has been accepted, these systems can store relevant information, including any specific reporting requirements for that limited partner, their appetite for co-investment opportunities, and their fund commitments and capital calls. This information can be leveraged by multiple departments within a PE firm.

Such examples show how the PE industry can gain from employing technology to manage data more efficiently and in a more easily usable form. Indeed, in instances where we have seen technology solutions implemented by PE firms, we have noted a significant reduction in the time needed to complete recurring tasks. Although this observation is not necessarily surprising, it is important to emphasise that such technological efficiencies allow firms to raise new funds or launch new products while avoiding many of the ‘growing pains’ experienced by peers that still rely on manual data management practices and processes. For these reasons, we expect the trend toward data automation to continue growing in the PE industry, especially as the industry becomes more comfortable with relying on technological solutions to mitigate investment, operational, legal and regulatory and compliance risk.


Jami Jack is a director and Ken Harman is a consultant at ACA. Ms Jack can be contacted on +1 (214) 930 9220 or by email: Mr Harman can be contacted on +1 (214) 930 9220 or by email:

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