Alternate Investment Funds (AIFs) i.e., Private Equity, Venture Capital, Real Estate & Debt Funds, Distressed Debt Funds and Fund of Funds, provide alternatives to traditional ways of investing in the capital markets. These different fund types share a lot of common challenges e.g., instant, and easy access to information, data security, compliance, advance reporting, and analytics etc.
Interestingly, AIFs have invested a lot in technology companies but they themselves have been hugely underserved because there have been very few IT solutions offering end-to-end support to these firms. Thus, most of the AIFs end up relying on, human intelligence and manual effort to manage their investments, specifically to monitor their Portfolio Financials. Not only is this time-consuming, but also a tedious task that lacks accuracy. However, over the last few years, technology solutions focused on AIF industry have evolved and thus adoption, even though relatively slow, has picked up as well. Work-from-home situation over last 18 months has strongly emphasized and accelerated the move from MS Excel to more suitable technology solutions (either SaaS or on-premises).
Various next-gen technology solution providers like PE Front office have been designed to manage the end-to-end investment process of AIFs with a special focus on Portfolio Monitoring capabilities. These solutions allow AIFs to capture key financial parameters of their portfolio companies and bring the entire workflow of investee company financials, such as income statement, cashflow, balance sheet, KPIs and ESG, on to a single platform for quick performance analysis. These platforms are available in cloud-based subscription model and can also be deployed and at client premises.
In a nutshell, technology can massively enhance productivity of AIFs and make the lives of fund managers a lot easier.
Below listed are the five most exciting ways in which technology can help PE/VC funds with Portfolio Monitoring:
- Helps in standardizing the financial metrics across portfolio companies
As each portfolio company may report financials and KPIs in a different format, it becomes challenging for the AIF to accurately capture this information and assess the overall performance of the portfolio. Technology solutions help in solving this issue as they allow AIFs to bring all portfolio companies on a single platform and provide standard templates to capture the same metrics across portfolio.
- Helps in setting up complex portfolio company structures, including underlying legal entities, and business units
Portfolio companies may have complex structures including various underlying legal entities and business units, having their own set of Financials and KPIs. The task of capturing all the entity level data, consolidating at the Portfolio Company level and reporting to AIF lacks efficiency and is time consuming. To address this, technology solutions like PE Front Office offer capability to setup underlying legal entities/business units and allow to capture the corresponding Financials and KPIs data. This data is then automatically consolidated at Portfolio Company level.
- Helps in setting up custom Financials, KPI and ESG metrics as per business requirements.
Not all AIFs monitor the same set of Financials, KPIs and ESG metrics. Moreover, these metrics may differ from one portfolio company to another. Hence, AIFs need flexibility to set-up their own set of financial metrics. Some technology solutions have taken a note of this important need and now offer capability to set-up custom Financial, KPI and ESG metrics at GP Level, Sector Level as well as Portfolio Level.
- Self Service Investee Portal that allows Portfolio Companies to login and update the Financials/KPI on their own
AIFs may require a dedicated resource for capturing the Financials and KPIs data on a regular basis as well as year-end audited numbers. This activity is not only effort intensive but also error prone. Some technology solutions have addressed this by offering a dedicated Investee portal, wherein portfolio company CFOs can login and upload the Financials and KPIs data on their own without the intervention of the AIF team. These solutions also offer capability to notify the AIF team in real time as soon as the data is uploaded.
- Helps in performing real-time analysis of data and generating comprehensive reports
Before the advent of technology solutions, the AIF teams used to rely on excel for analysing the data and creating reports. This time-consuming activity involved consolidating massive amount of data and crunching the same for days to arrive at the final analysis. With new age technology solutions, analysis of data and generation of comprehensive reports is just a matter of seconds. These solutions have inbuilt reporting engines which run on real-time data and provide complex analysis and reports with just a click of a button.
With an increasing push for digital initiatives fund managers are bound to face more and more compliance directives sooner or later. Technology providers can leverage this situation and develop solutions that comply with international regulations and local regulatory frameworks defined by the government and other regulatory bodies. Several Alternative Investment Fund managers have already taken note of this and as a result, there is an increasing trend of dependence on technology in the Alternative investment space.
A lot of next-gen technology solutions for AIFs are emerging recently, however, future will be bright for those one-stop solutions which will be able to support the complete range of GP activities, from Deal Flow – Fundraising – Investment Management – Portfolio Monitoring – Investor Relations Management – Fund Administration to Fund Reporting.