As the Chief Financial Officer of a private equity firm, one of your many responsibilities is facilitating the analysis and communication of your funds’ performance. The insights this data can reveal are more important than ever to your colleagues, stakeholders and investors, yet many CFOs are restricted in leveraging their data to its fullest potential due to outdated systems and processes.
Why is a robust private equity fund performance analytics process important? With private equity undergoing major changes as it matures as an asset class, you must ensure your processes and systems across the whole business are set up to help your firm adapt and grow in sync with the industry.
Internal Portfolio Monitoring and Evaluation
As your firm evolves, new funds are raised and the portfolio grows, the value of your performance data only increases – more statistically significant data enables more meaningful and actionable insights. This can help you identify the attribution and correlations between the most successful deals, funds or even individuals. Future fund strategies can then be developed using a more data-driven approach. With investors flocking to private markets strategies in the hopes of out-sized returns, dry powder is plenty and competition for deals between managers is stronger than ever. This data-driven approach can help managers focus their strategies on their evidenced strengths to compete more effectively.
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More
Fundraising and Investor Relations
Ensuring an effective performance analytics process is also important for your investor relations and fundraising efforts. Implementing an effective process will enable you to easily point to hard data when raising your next fund, which is key in building trust and confidence with prospective investors. A robust process can also help you better facilitate investors’ requests during due diligence or ongoing reporting. A 2016 eVestment survey found 43% of LPs are increasing the amount of quantitative due diligence they undertake.
Our whitepaper, “The Private Equity CFO’s Guide to Fund Performance Analytics,” explores the importance of a robust portfolio analytics process and guides you through a series of questions to ask to ensure your current process is helping, not hindering, the growth of your firm.
A Checklist for Best-in-Class Performance Analytics:
Is your process accurate, consistent and repeatable? How are you mitigating the risk of human error impacting the accuracy of your performance calculations? Is your process over reliant on one or two key individuals? If asked by LPs, could you easily point to a repeatable and consistent process?
Is your process efficient? How much manual work does it take to update fund performance with new deals, exits or valuations and evaluate the impact on your total track record? How long does it take you to isolate certain deal sectors or geographies and understand their relative performance? Are you able to quickly model out future performance of unrealized deals and assess the impact on the portfolio for your forecasting? Once calculated, how quickly are colleagues and investors able to consume the results?
Does your process promote information sharing? Does your process allow the IR team to dig into fund and firm performance themselves to better understand strengths and weaknesses? Can your investor relations team or finance colleagues “self-serve” to get the information required by investors quickly? Can crucial track record, fund and portfolio company level information be accessed on-the-go via any laptop or tablet?
Does your process facilitate sophisticated requests and analysis? Can you easily calculate sophisticated metrics and analysis, such as Valuation Bridges and Public Market Equivalents? Does it have the sophistication and flexibility to facilitate investments across currencies? Does it ensure you are keeping up with industry standards?
Is your process secure? Does your process ensure sensitive information is accessible only on a permission-basis internally as well as externally? Can you not only grant, but recall, access to this information if needed? Can you view who has access and who has actually accessed your performance data to form an audit trail if required? Is your key performance data protected by financial industry standard encryption?
Performance analytics software designed specifically for private markets can automate the calculation of total track record, fund and/or deal performance, mitigating errors and offering a more robust, consistent and repeatable way to calculate and store performance data. If you’re interested in upgrading your current systems and processes to enhance your firm’s capabilities, speak to us today about eVestment TopQ.
Article by Andrea Teh, eVestment