How Data Challenges Hold Back Private Equity's Hunt for Unicorns 

Issues with data management at private equity firms often complicate and constrain operations. However, new tech stack solutions present a compelling route forward.

Private equity firms increasingly find that data management challenges hamper their operations. Fragmented and bespoke data sources, inconsistent governance, and legacy systems slow down their internal teams. Many leaders report that these inefficiencies limit their ability to focus on vital investment activity–like finding the next billion-dollar firm. However, advancements in PE-dedicated technology are changing the game and offer firms the potential to optimize operations.

Within PE firms, each organizational function faces different issues regarding data management.

Balancing Deal Assessment vs. Data Wrangling 

Take the investment team that manages the deal evaluation process.  At a typical small-to-mid-sized PE, teams weed through hundreds of CIMs to identify a few dozen targets to conduct due diligence on. This requires collating data from multiple sources, including notes from internal CRMs, third-party intelligence services, and proprietary modelling tools. Information is often buried in PDFs and spreadsheets in both structured and unstructured formats. Data aggregation and standardization can present a massive operational challenge.

Deal assessment is not the only role of the investment team. They must also analyze large sets of complex data to help the firm monitor, optimize, and value its existing portfolio companies. For this, each portfolio company submits its raw performance metrics in different formats at different intervals. That data then needs to be aggregated, parsed, and standardized. Only then can it be put into a standalone system for analysis against the firm’s KPIs.

This process is often manual and time consuming, slowing operations, decision-making and communications with LPs. And specifically, firms can find it challenging to streamline the valuation process. They need accurate data for trend analysis, scenario modelling and backtesting valuations.

Investor Relations: Breaking the Communication Bottleneck 

Investor relations teams typically focus on fund-raising activities with potential LPs. Their role includes preparing communications and materials to showcase their firm’s performance in the best possible light, tailored to their audience. But they, too, can find themselves constrained by data access issues. As investors become more savvy and armed with better data, they often pepper the investment relations team with rapid-fire, in-depth questions on precise performance indicators as well as investor and fund-level cash flows.

To keep up with these demands, investor relations teams need more flexible tools to sort, group, and analyze data swiftly and efficiently. The ability to access and tailor information in real-time is critical to addressing LPs’ evolving needs. However, much of this information isn’t readily accessible and often requires multiple follow-ups, adding to the operational backlog.

Finance Team: The Reconciliation Burden 

Finance teams also face similar challenges with data accessibility. Without centralized access to financial data organized to match fund entities and vintages, they often depend on analyst teams and fund administrators to provide them the data, which they reconcile upon receipt. This can be a painstaking process requiring line-by-line comparisons on each data point to identify errors and gaps while ensuring they mitigate downstream effects.

Unfortunately, this extensive time spent on data hygiene and reconciliation means they spend less time on producing impactful, high-quality analysis for the deal teams and investors. That can be problematic. Accurate reporting is paramount to maintaining investors’ trust and even the continued viability of the PE firm.

The Technology Solution: A Purpose-Built PE Tech Stack 

These challenges are common across the alternative and PE sectors, where fragmented data sources and legacy tools hold back operational efficiency. The answer isn’t to add more analysts or administrative staff but to implement a tech stack designed specifically for data enablement. A well-designed system should integrate data in a variety of formats, parse and extract the necessary details accurately, and provide real-time information to the internal teams so they can operate more effectively. Customized solutions are now available for PE firms that leverage API integrations, optimize workflows, and use AI-powered data extraction. By implementing the right technology stack, PE firms can free their teams to focus on what matters most: finding and nurturing the next generation of exceptional companies.

Want to learn more about optimizing your PE operations? Contact us to discuss how our technology solutions can transform your firm’s efficiency.