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On The Record

In Their Own Words: Private Equity and the Tech Revolution

10/15/2019

 

As Seen in: The Wall Street Journal

— By Laura Kreutzer, Reporter

Technological innovation is transforming nearly every industry across the globe, and private equity is no exception. We asked senior professionals from across the industry to share their views on how technology is affecting the industry.


Brian Conway, TA Associates

Brian Conway, Chairman and Managing Partner, TA Associates

In what ways has the digital revolution affected your firm’s operations? Where has it had the biggest impact?

TA’s effort to leverage and implement technology across the entire ecosystem of the firm has yielded improved and more actionable data; numerous workflow efficiencies; and the introduction of new tools that have helped with managing day-to-day operations and improving mobility and productivity, particularly when on the road. The biggest impact, however, has been on our investment origination efforts. For example, we have enhanced our proprietary database through which investment prospects and portfolio company add-on acquisition opportunities are actively tracked and developed. [We also] developed applications to automate a variety of initiatives that were previously done manually and created a system that proactively alerts our team of current [or] prospective company news, as well as meaningful and timely data on various company growth metrics that we track.

What do you see as the one or two biggest challenges facing chief technology officers/chief information officers in the private-equity industry today?

On the risk side, cybersecurity has been one of the biggest challenges and remains a critical component of the technology landscape. On the opportunity side, I believe that eventually data science and machine learning will be more broadly adopted in private equity to help improve investment sourcing and decision-making, as well as portfolio operations.


Eric Feldman, The Riverside Company

Eric Feldman, Chief Information Officer, The Riverside Company

In what ways has the digital revolution affected your firm’s operations? Where has it had the biggest impact?

Like other terms that capture the imagination, such as big data, digital revolution or transformation can mean different things to different people. For Riverside, its digital revolution has focused on evaluating the manual tasks managed across the firm. In thinking just about the operations of the management company, these permeate across the back office and amongst our investment professionals. Where a technology solution can add or create value, this has been our focus. Routine tasks, in particular, are very good candidates for automation, which would free up resources to focus on value-added work. In our 30-plus years of investing in smaller companies, we have amassed a treasure trove of data. Part of our strategy, as it relates to digital transformation, is to evaluate opportunities to make this data more accessible, easily digestible and creating touchpoints where external data commingles with our internal data to help inform our investment professionals as they research new investment opportunities. This will have a positive impact for Riverside.

What do you see as the one or two biggest challenges facing chief technology officers/chief information officers in the private-equity industry today?

A noticeable challenge today is the proliferation of data across disparate systems. Some of this data is controlled and managed by the firm, but also significant quantities of data are accessible publicly or through paid subscriptions. Weaving these data points together to ensure employees have real-time access to information can be a challenge. In the past, knowledge about a particular deal, for example, would be nicely confined to a traditional file server storing models, research material and information collected from data rooms. Anything you needed to know about that particular opportunity was a few clicks away. The abundance of information and the dozens of tools used for research make it so this type of containerization doesn’t allow for easy access to information. Democratizing data so insights can be learned across an organization is a significant area of opportunity for many private-equity firms today.


Tricia M. Mackechnie, HarbourVest Partners

Tricia M. Mackechnie, Chief Technology Officer, HarbourVest Partners

In what ways has the digital revolution affected your firm’s operations? Where has it had the biggest impact?

The good news is that the pace of technology continues to accelerate, which means that there are more opportunities than ever for businesses to do three things: transform their relationship with data, improve operations and provide greater efficiency for their employees and clients. Specifically, implementing low-code business-process-management tools and integrating these tools with administration engines has created significant operating efficiencies and productivity gains. Using these technologies and frameworks allows us to deliver business capabilities faster through agile methods, while also applying continuous improvement techniques. What that means in plain English is better quality data, faster. It also means more efficient processes and better reporting. It’s a win for our business, because our teams can do their jobs more efficiently and for our clients because we can offer them insights and information faster.

What do you see as the one or two biggest challenges facing chief technology officers/chief information officers in the private-equity industry today?

The pace of change means that adoption timelines get shorter. There used to be a burn-in period when it comes to adopting new technologies, but that’s no longer the case. This rate of acceleration challenges the ability of our teams to manage changes within the business, as well as changes to the tools they use and the way they work and collaborate. To effectively keep pace with the rapid shifts in technology, companies need to approach these challenges not as simply a technology issue, but rather a business issue, and properly allocate time and resources to ensure adoption across the organization.
While the implementation of business capabilities enabled through technology has continued to evolve, the workforce is often challenged by legacy programs and business models. Today, change management is constant and essential to reskill your workforce as private equity takes advantage of more sophisticated tools. Whether that is data analytics, sophisticated cybersecurity tools or advanced CRM solutions, leaders will need to focus on preparing the workforce for the future digital skills that will be a necessity for where the industry is headed.


Niki Mangos, Hamilton Lane

Niki Mangos, Chief Technology Officer, Hamilton Lane

In what ways has the digital revolution affected your firm’s operations? Where has it had the biggest impact?

We aim to be a world-class partner to our clients, who are investing across the full spectrum of the private markets. To us, the digital revolution has meant new and even better methods of providing the best possible client experience through higher-quality data, more transparency and, ultimately, better decision-making. We believe we are at the forefront of this effort within the private markets and the digital component of this is crucial.

What do you see as the one or two biggest challenges facing chief technology officers/chief information officers in the private-equity industry today?

For me, data is priority number one, two and three. Data is king in private markets decision-making. But as an industry, we consistently lag the public markets in applying the latest technology to maximize the value of data. We are focused on pushing towards new levels of sophistication in data quality and speed to market in order to help our clients increase efficiency in their commitment pacing, investment selection and portfolio construction and processes.


Amy Newlan
Amy Newlan, Maestro by Accordion

Amy Newlan, Head of Client Development, Maestro by Accordion

In what ways has the digital revolution affected private-equity firm operations? Where has it had the biggest impact?

Private equity is evolving into ‘private techquity.’ If PE shies away from operational adoption of technology, PT embraces it as critical to efficiency. In fairness, this evolution has been painfully slow: moving from QuickBooks to back-office tools like Investran and then CRMs like DealCloud. Now, nascent tech offerings targeting PE firm operations are all the rage. What’s driving the techquity? In part, a new wave of tech-centric firms who’ve enlightened PE to tech’s operational benefits. In part, the technologists/tech veterans who’ve been recruited as operating partners and have preached about tech’s transformative capabilities. Mostly, it’s the recognition that with so many sponsors chasing the same dollars during fundraising, tech is becoming the differentiator. It’s a mandate from LPs and it’s accelerating exit.

What do you see as the one or two biggest challenges facing chief technology officers/chief information officers in the private-equity industry today?

The biggest challenge for PE firm CIOs/CTOs is proving they can add value to deal teams, turning from cost center to profit enabler. How do they do that? One word: data. Data is the golden ticket to portfolio performance—and only CIOs/CTOs are equipped to help deal teams leverage it as an asset. There are tons of ways to do this, but here’s one tangible example: value creation. Value creation is playing an elevated role across firm portfolios, so it should be ‘data-fied’ and digitized (i.e., easy to roadmap, scale and replicate). But it’s not…at all. If CIOs/CTOs want to add bottom-line value, they can start by tech-enabling value creation: capturing and contextualizing relevant data so deal teams can have a more informed approach to portfolio deal performance.


Wil VanLoh, Quantum Energy Partners

Wil VanLoh, Chief Executive, Quantum Energy Partners

In what ways has the digital revolution affected your firm’s operations? Where has it had the biggest impact?

The digital revolution redefines everything about how we work and make decisions. It’s a complete paradigm shift from how we used to do things. It’s not a destination, it’s a journey. We see the digital transformation as an enabler to 1) work smart—automation of inefficient processes; 2) collaborate effectively—through digital platforms; 3) manage information and data—centralized data and digital documentation; 4) bring intelligence into our investment decisions—data analytics; and 5) utilize historical data to build a strong foundation for the future—through predictive modeling and artificial intelligence.

The biggest impact is achieved by trustfully incorporating AI and ML into our daily activities, guiding our investments decisions, empowering our portfolio companies and identifying investment opportunities. Our end goal is not only to transform how Quantum runs our business, but also to help our portfolio companies to go through the same digital transformation so they have the tools to compete on a level playing field with larger public companies.

What do you see as the biggest challenge (or challenges) facing private-equity firms when it comes to technology?

Strategy: Developing a companywide digital transformation strategy will be a challenge to many PE firms because they will have to change the way they have always conducted business. Embracing new technologies requires cultural transformation beyond the digital transformation. There needs to be a strategy embraced by the firm’s most senior executives.

Team: The digital journey requires a combination of in-house and external talent and technology. A typical PE workforce never needed such talent. There needs to be a strong leader of the technology team to lead the digitization initiatives and recruit the right people.

Approach: The new frontier of technology- and data-enabled AI and ML has never been used by most PE firms to help make investment and other business decisions. One can be easily lost on where to begin. The core competencies that made the firm successful historically should drive the purpose of the digital transformation. Defining quick wins and building a common goal is critical.

Time and budget: As previously mentioned, this is a journey. It requires continuous improvement, evolution and development. In the early phase, defining the budget, milestones and timing is essential. The firm’s leadership must understand that it may take time for the full potential of the digital transformation to be fully evident.

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