Amidst a changing macroeconomic environment and shifting industry headwinds, we’ve noticed a rising trend among our clients and prospects that more and more managers are launching new investment strategies. We have seen private equity managers exploring private debt, private debt managers branching out into CLOs, CLO managers considering real asset strategies, and so on. In fact, 47% of GPs surveyed in Allvue’s 2023 GP report noted plans to expand to new investment strategies within the next three to five years.
This asset class diversification typically creates new operational challenges – which teams typically meet by onboarding additional specialized systems, tailored to the specific needs of those asset types – but it creates an additional challenge as well: the increased segmentation of data.
Segmentation of Data: A Growing Challenge
The complexities of data management have long been a challenge for private capital managers – who have to corral data from a growing number of sources and teams across a fund’s lifecycle. Multiplying this task across a larger number of investment sources compounds these issues, however, by both making the challenge of managing and extracting the data more difficult and the need to do so in actionable way more paramount. When you consider that, per Allvue data, 63% of GPs take a fully manual approach to their data management, it’s clear that the average GP is lacking in actionable insights.
Actionable is, in many ways, the key word here. To derive meaningful insights – ones that can be of real, actionable value – fund managers need to be able to do two things. First, they need to overcome the efficiency hurdle – to find scalable and error-free data management processes that don’t prohibit growth. Second, they need to be able to integrate data from across stages of the fund lifecycle so that they can obtain a comprehensive view of their portfolio.
The Efficiency Hurdle
At root, the most complicated component of data management can be considered a challenge of efficiency. GPs need tools that are flexible enough to bring in a wide variety of data and then pass that data through to the various phases of the investment lifecycle, especially in regard to communicating with LPs about fund performance. Allvue’s 2023 GP survey found that 70% of respondents name either routine LP/regulator reporting or on-off LP data requests to be the biggest operational challenge they face.
API-driven approaches are quickly taking the lead here, and with good reason. They allow for the seamless transfer of data between various platforms, tackling some of the most pressing challenges of the segmentation issue. We at Allvue believe that APIs will continue to play a key role in GPs’ data management processes – but not the only role.
The Need for a Dedicated Data Platform
To tackle the complexities unique to the private capital industry, GPs require a comprehensive data platform designed specifically for their needs. Such a platform would offer features tailored to the intricacies of private capital operations, including data normalization, data governance, advanced analytics, and customizable reporting capabilities.
Implementing a dedicated data platform unlocks a range of benefits for fund managers. First, a robust data platform enables GPs to better clear the efficiency hurdle. By acting in concert with data imports and exports, a data platform can take the capabilities of those tools and further step up their value by consolidating the data from different point solutions into one coherent solution.
Second, a data platform provides a centralized hub for all data-related activities, providing GPs with the holistic perspective they need and thereby enhancing risk management and performance analysis. The insights that GPs can glean from these advanced analytics capabilities will, subsequently, empower them to make data-driven decisions, more quickly respond to inquiries from investors and stakeholders, and further maximize value creation.
The Growing Need
At Allvue, we have built the only fully-integrated data platform that can accommodate multiple strategies. But even this solution will not magically solve all of the data segmentation challenges facing GPs. The problem is so significant and, as GPs continue to invest in new strategies, growing so quickly, that no single solution can possibly eliminate it.
Instead, managers will need to continue to evolve a comprehensive data strategy. And technology providers will need to develop increasingly sophisticated tools that can help GPs execute their strategies and navigate with confidence the ever-increasing complexities of this emerging landscape.
The next great challenge for private equity: Consolidating segmented data in the age of diversification
Yuriy Shterk, chief product officer, Allvue Systems, sits down with Global Custodian to discuss the growing trend of diversification of private equity investment strategies, and how Allvue is uniquely placed to tackle the complexities that come with this emerging landscape.
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