Technology is transforming Alternative Investment operations, making them more efficient and investor-focused. It is reshaping the industry, providing better workflow solutions, and offering new opportunities for growth and innovation for Alternative Investment firms.
In Conversation with Ankur Agarwal, Co-Founder & CTO, PE Front Office
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1. Can you elaborate on how you view the role of financial technology in enhancing the efficiency of private equity operations?
Traditionally, private equity operations have been associated with complex and time-consuming processes. However, the advent of financial technology has brought about significant enhancements in efficiency and effectiveness. Technology has streamlined deal sourcing and due diligence processes. FinTech tools automate various manual processes involved in private equity operations, such as portfolio management, valuation, compliance, and reporting. By leveraging technologies private equity firms can reduce human error, minimize administrative burdens, and enhance overall operational efficiency. Real-time monitoring and reporting dashboards facilitate better risk management, allowing firms to make data-driven decisions promptly. FinTech tools have revolutionized the fundraising process and investor relations. This improves transparency, communication, and engagement with investors.
2. How is the latest fund management technology helping companies save resources?
Funds typically employ a small number of employees and hence value their staff members' time greatly. That’s why implementing any method or technology that can automate the work they currently do greatly benefits them because it frees up their valuable time so they can focus on more important things rather than repetitive jobs. For instance, dealing with a lot of data is necessary for reporting reconciliations and other purposes. Each of those procedures is automatable, therefore saving a ton of time. The accurate and timely information that businesses have at their disposal enables them to analyze it and make sense of it, which streamlines the process of making investment decisions. This process can be made extremely quick, efficient, and successful with the aid of a tool.
Further, another issue that comes to mind is that private equity and venture capital funds are subject to a lot of compliance and regulatory requirements given that they operate in the financial sector. Therefore, they have a lot of adherences to regulations and compliances to meet which require a lot of time and work. All those items can be generated quickly and automatically with the use of tools, consequently saving much time and money, and preventing any reputational damage.
3. How are advanced Portfolio management tools helping private equity firms and venture capitalists make better decisions?
The data that businesses have, its accuracy, and their capacity to comprehend, it all has a significant impact on the business’s ability to make decisions. Therefore, these tools or the technology in this field can assist them in getting data from many sources. For instance, how do you gather financial data to compare one investment to another when you are managing a portfolio? How are different cash flows monitored and analysed? How are performance parameters like internal rates of return and return on investment being calculated? All these factors usually contribute to better decision-making. Monitoring and assessing risks is a crucial component; therefore, technologies can be used to keep an eye on investments, assess their health, raise any alerts when a risk arises, and then reduce that risk and take corrective action.
Real-time reporting and dashboards make it easier to make prompt decisions and quickly identify any asset that is performing poorly. The firm can then decide whether to act based on the information the tool is providing.
Further, how to value your investment and when to exit those investments are two crucial decision-making factors that are present in these operations. That’s where the tools can aid you in valuing your investment at various points in time as well as in dealing with various exit strategies and exit scenarios. They can also help the team make better decisions by directing when to exit an investment.
4. From your perspective, what are the most significant benefits and challenges associated with providing technology solutions in portfolio management?
The benefits that I can think of with these technologies – productivity goes up, operational efficiency is improved, and data analysis is enhanced, resulting in effective decision-making. The technology solutions offer real-time reporting, monitoring, and other services that enable alternative investment firms to focus on more strategic activities. To put it simply, when alternative investment firms employ tools, they have the potential to manage additional teams and investments. They don't need to significantly expand the crew if they have the necessary tools. The team's teamwork and communication are then undoubtedly improved.
With regards to the challenges - ensuring that the data is correct and of high quality is one of the main hurdles that any solution must overcome. One issue that the solution must undoubtedly address is reliability. Another issue that frequently arises with users is that, while it's a robust solution and we want to move forward, how do we actually roll it out? How can we migrate the data we already have? How can we combine it with the existing systems we have? The ability to move all their legacy data and link the tool with their current systems to provide a single, consolidated view within their system is another difficulty we must address with our customers to ensure a successful implementation. How secure is our data? is another often-asked question from practically all our customers. How can the security of the data be ensured? What are your data privacy and other policies? Therefore, addressing consumers' concerns about data security is paramount. Maintaining compliance with data protection regulations and preventing data breaches pose ongoing challenges. Additionally, training the customer’s team to adopt the solution, providing the appropriate inputs, and making sure that the necessary support is available, is also critical.
5. In terms of operational efficiencies, where do you think your technology has made the most significant impact?
I believe that simplifying the transaction pipeline and due diligence procedures and having the capability to analyse enormous quantities of data, making sense of it, and delivering to businesses the metrics they are interested in are the most significant influences. Assisting them in making sure they are compliant is another important area, and these tools can manage the necessary compliances. The ability to provide a report that is acceptable to investors and regulatory agencies is a significant efficiency gain for them. Those, in my opinion, are the key areas for operational efficiency.
6. How do you strike a balance between providing cutting-edge technologies and managing the associated risks and costs?
Every technology carries certain threats, but those risks must all be reduced if we are to continue making progress, moving forward, and embracing emerging trends in technology. A solution provider like us must include in their approach the actions that can be performed to comprehensively manage the risk. Therefore, we have a process in place that makes sure we thoroughly and accurately examine the risks associated with the technology we are attempting to deploy. That would entail whether the tool is in compliance with certain regulations or not, whether it would fit into the tool or technological environment, and more. Future updates and other issues need to be considered in terms of support.
Then there is the question of scalability, or if the system will be able to handle an increase in users and data volumes without becoming unworkable. Another question that comes to mind is whether or not the implementation can be done gradually; after all, no one wants to go in with a huge bang these days, do they? The alternative investment firms, therefore, want to implement the tool gradually - begin using certain of its features, and then gradually increase their use of it. Therefore, the system must allow for both a progressive and escalating rollout and minimize disruption. With time, the scope of the implementation can be expanded. Then, much like with existing technology, we should be able to continuously monitor and assess any new technology to see if it is accomplishing its goals. That would be my opinion on the matter.
7. How is your data collection and management technology helping portfolio companies with better management?
Our system caters to the funds that oversee portfolio companies. Hence, what we offer to the funds is – portfolio information, reports, and compliance management. Fund managers can capture all the data of their portfolio companies in our solution, which is unquestionably something that these funds must undertake to track growth, risk, and any warning signs. This enables the fund management team to gain insights into the data and know what remedial action must be taken.
8. AI and automation are some of the buzzwords in fintech today. Could you share your thoughts on how these technologies can potentially benefit companies like yours by creating better solutions for portfolio companies?
I believe that given the pace at which artificial intelligence is advancing, no industry or solution can afford to fall behind and ignore this technology. The use cases that we observe in our domain are also based on some recent client feedback that we have received. So, for instance, a lot of data is gathered by our technological solution from the portfolio companies or investee companies of the fund, like Revenue, EBITDA, Growth, and so on. So, one trend that will soon emerge is how to create a commentary using that data. Therefore, whoever must report need not provide commentary, as the AI should be able to provide such a narrative. For instance, if the revenue has increased by x% YOY (year over year) or EBITDA has decreased by this percentage point, AI should be able to deduce and convey what it means, along with other observations with respect to sector, geography etc. AI algorithms can provide intelligent decision support and can analyse historical data, market conditions, and industry benchmarks to offer recommendations and insights for portfolio company management.
9. Cybersecurity is a significant concern with increased digitalization. How do you address this issue while implementing innovative solutions?
Before joining us, practically all of our customers have this as one of their top concerns and inquiries. Security, in my opinion, is one of the most important characteristics that any product in this field must include. From the very beginning of the solution design, we make sure to include those security policies. Therefore, each element of the software development cycle needs to include security considerations. It cannot be restricted to the project's testing phase; it needs to be considered appropriately during the design process, and then it should be ensured that the design is being followed and implemented during each of the development phases.
Further, the system's authentication and authorization mechanisms, basically who can log in and who can see what after they log in, need to be extremely reliable. Therefore, measures like multifactor authentication, role-based privileges, and ensuring that the principle of least privilege is followed are necessary to ensure that people only see what they are allowed to see.
Therefore, it is our responsibility to make sure that the system has everything that will provide the clients with confidence and comfort. It's crucial to make sure that the data that is stored in the system is encrypted while it's in transit and addressed. These are the mechanisms that, in my opinion, must be implemented and present in the system. To make sure that no new threats have crept into the system after it has been put into use, third parties might do routine evaluations, penetration tests, and vulnerability assessments. If any risks are discovered as part of these assessments, they can then be promptly addressed.
Additionally, we must simultaneously adhere to various regulations that are relevant to data protection and privacy; hence, the GDPR, CCPA, etc. Therefore, the solution must likewise comply with those regulations. Naturally, there are also other factors, such as routine patching, periodic updates, making sure bugs are tested, and so forth. These must therefore be addressed as part of the development lifecycle.
In Conversation with Ankur Agarwal, Co-Founder & CTO, PE Front Office
10. Could you describe how your company has adapted its workforce to keep pace with these advancements? What skills are you seeking as you build your team for the future?
The technological landscape is always evolving; in fact, new technology is developing every other day. There are benefits associated with every new technology, as well as a learning curve that the team must go through. As a result, we work as a team to reskill ourselves on the technologies we work with. Reskilling ensures we use better methods to employ the available technologies.
Team members are also encouraged to upskill enabling them to acquire new skills in areas such as data analysis, AI, cybersecurity, cloud platforms, and project management. Trainings ensure that our team members can quickly adapt to new technologies and work methodologies. I would describe this as a constant process. We use agile methodology either when developing a solution or when implementing it for a customer. Thus, we also teach this agile and adaptive mindset to our team members.
Furthermore, when developing any solution, team members must ensure that all the security that we envisioned during the design phase is embedded in the various steps that they follow. This requires them to be aware of security best practices at the development level as well as whenever they are deploying any solution.
11. How do you envision the future of innovation within the industry? Are there any specific trends or technologies you believe will be key factors?
I envision a future where innovation plays a pivotal role in shaping the industry. Fintech solutions are poised to be key factors in this transformative journey. The adoption of fintech technologies has already started revolutionising various aspects of fund operations, and I believe this trend will continue to accelerate.
One of the most significant trends I foresee is the increasing integration of artificial intelligence and machine learning into investment processes. These technologies enable investment managers to analyse vast amounts of data more efficiently and uncover valuable insights for investment decision-making. By leveraging advanced algorithms and predictive analytics, we can enhance the ability to identify attractive investment opportunities and optimise portfolio performance.
Another critical factor is the continued development of blockchain technology. It’s decentralised nature and secure transaction capabilities hold tremendous potential for improving transparency, efficiency, and trust in the industry. We can expect to see increased utilisation of blockchain in areas such as ownership verification, smart contracts, and the secure and efficient transfer of assets.
Environmental, Social, and Governance (ESG) considerations are gaining prominence in the alternative asset industry. Innovations are likely to emerge in ESG data collection, analysis, and reporting. Technology can play a crucial role in integrating ESG factors into investment strategies, measuring impact, and ensuring compliance with ESG frameworks and regulations.
The alternative asset industry is becoming increasingly data-driven. Moreover, the rise of alternative data sources and advanced analytics tools will further drive innovation in the private equity industry. The ability to harness non-traditional data sets, such as social media sentiment and IoT-generated data, can provide valuable insights for investment due diligence and monitoring.
Additionally, the growth of fintech platforms that connect investors and entrepreneurs will continue to reshape the fundraising landscape. Crowdfunding, peer-to-peer lending, and online marketplaces are transforming the way capital is raised, making it more accessible to a broader range of participants.
12. In what ways has fintech changed the investor relationship in private equity?
Any fund's relationship with its investors is crucial because that is where the money originates from. Therefore, it is crucial to focus on the relationship, communication, and minimising the time spent on that activity. Since a lot of work has already been put into it, I believe that over time, all investor-related operations will appear to be even more digital. Investor portals that offer investor reporting and investor onboarding & KYC features are already present. All those processes have been largely digitised, which has cut down on time. And because of digitization, not only has investor trust increased, but also time has been saved, and data accuracy with regard to investors has greatly improved. As a result, I anticipate seeing additional advancements in that area.
Further, in terms of the reports that can be delivered to investors in the time frame that they anticipate and the accuracy of the data in those reports, both factors have significantly improved. This has increased investors' confidence with regard to transparency and given them the ability to make quicker decisions, allowing them to make additional investments in the same fund, a similar industry, or a similar situation.
Overall, fintech has brought increased accessibility, transparency, efficiency, and engagement to the investor relationship in private equity. Investors now have greater control over their investments, access to more information, and enhanced opportunities to participate in the private equity market.
13. How are your front- and middle-office processes for alternative investment management ensuring a better workflow for investors?
A substantial portion of the investor onboarding process has been digitised. Today, investors can track the status of their assets in real time by using investor portals. Earlier, capital calls used to take a lot of time to initiate and complete the transactions; however, thanks to technology, the total amount of time spent on those transactions between the fund and the investors has significantly decreased. The technology's self-service features are also a big hit with investors. Therefore, they prefer to do a lot of things themselves to save time on paper-based communication or exchanging emails back and forth. As a result, they can provide a lot of real-time analytics independently using these sophisticated investor portals.
Investors place a great deal of emphasis on the fund’s compliance levels, which is another crucial factor. To determine whether the compliance of funds with various regulatory agencies is up to par, reporting must also adhere to international standards. So once again, the technologies have been quite helpful in ensuring that those things take place. The fact that the reporting is done in line with international standards and the compliance issues are addressed increases investor trust in the operations of the fund.
14. Lastly, how do you see new tech solutions affecting the mindset of these portfolio companies in the coming years?
We work with the funds that manage these portfolio firms. Having said that, if we assist the funds in improving operational efficiency, it stands to reason that they will be able to make, in my opinion, better and more informed investment decisions. The funds would be better equipped to identify the risks involved and take corrective action with their portfolio companies if we assisted them in gathering financial and, let's say, key performance indicator data from their portfolio companies. We once again support funds in their efforts to monitor and communicate with their portfolio companies. As a result, it increases the interactions and communications general effectiveness between the funds and the portfolio companies. So, those are the main things, in my opinion, that we can assist with and ensure that technology is a strategic enabler for the ecosystem.
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