By Ankur Agarwal, Co-Founder & CTO, PE Front Office
Overview
Environmental, Social, and Governance have become significant parameters for measuring a company’s performance. These metrics are becoming extremely important for Alternative Investment Management as Private Equity and Venture Capital firms use this data extensively to make investment decisions. Alternative Investment firms need to do complete industry research and peer company benchmarking before committing funds. This requires them to have complete knowledge of the dynamic market conditions and the industry status of their investee companies. They need to have competitive intelligence on investee companies that includes how they are handling Financial/KPI/ESG reporting and where they stand on each parameter. Further, even after investment, they need to regularly monitor the financial health of the investee companies so that they can suggest corrective measures in case there is some deviation or declining trend.
However, this is easier said than done as the collection, analysis, and reporting of Financial/KPI/ESG data is complex and time-consuming. Since traditional tools like Excel are not capable enough to handle the dynamic requirements involved in the management of Financial/KPI/ESG data, Technology service providers have recognised this blind spot and come to the rescue of Alternative Investment firms with intuitive and affordable software solutions.
Alternative Investment firms consume Financial/KPI/ESG data both during the pre-investment as well as post-investment period. During the pre-investment stage, the Financial/KPI/ESG data can be retrieved from databases or research service providers, while during the post-investment stage, the data is regularly shared by the investee companies. Since Alternative Investment Firms have multiple investee companies, the Financial/KPI/ESG data can be in different files and formats. The complex multilevel structures of these investee companies comprising different business units and legal entities pose a tough challenge in data collation. Furthermore, changing compliances and government regulations also add to the pain of investment managers. Therefore, in the absence of the right platform, the collection, analysis, and reporting of data are likely to be scattered and unstructured resulting in sub-optimal information. What alternative investment firms need is a platform that efficiently handles the management of Financial/KPI/ESG data across portfolios. New-age technology solutions are stepping up to address the following Financial/KPI/ESG management requirements of Alternative Investment firms:
Single Source of Truth
Technology solutions offer capabilities for the collection, analysis, and reporting of Financial/KPI/ESG data. These solutions act as a single source of truth, thus eliminating the most common issues of data duplicity and remote access. Further, they also offer interactive dashboards to translate data into actionable insights that can help Alternative Investment firms understand business trends and take informed business decisions.
Multilevel Portfolio Company Structures
Technology solutions allow Alternative Investment firms to set up multilevel portfolio company structures comprising business units and legal entities. This enables the investment managers to collect Financial/KPI/ESG details at each level. Further, the technology solutions also offer the capability to automatically roll up the data from each level, thus giving a comprehensive 360-degree picture of the complete investee company and helping them in managing the investments better.
Custom Financials/KPIs/ESG metrics
Technology solutions allow Investment managers to define Financials/KPIs/ESG metrics as per their business requirements. This helps the Alternative Investment firms align with the broader objectives of the society and helps them assess the compliance of investee companies with ESG metrics as well as compare the financial performance with peers.
Data Collection
Various technology solutions simplify the data collection process by offering Investee Company Portal, wherein investee companies can upload their Financial/KPI/ESG data directly in predefined formats. This efficient way of collecting data from the investee companies reduces manual intervention and the chances of error.
Analytics & Reports
Technology solution allows PE/VC firms to perform real-time analysis of data and generate comprehensive reports based on the data inputted in the software. This provides AIF managers with accurate reports and data analytics that can help them assess the performance of investee companies and take informed business decisions.
Conclusion
Alternative Investment firms have traditionally relied on tools like Excel to manage their investment process, more specifically, the Financial/KPI/ESG monitoring process. However, complex multilevel structures and ever-changing compliances & regulations make sure that the portfolio monitoring process is not so streamlined and straightforward. It is therefore a challenge to manage this process manually and this is where technology offers immense potential in enhancing Financial/KPI/ESG monitoring. Technology solutions not only address the challenges of data collection but also help in the analysis and reporting of the data to make the portfolio monitoring process more streamlined.
As technology is becoming more accessible, an increasing number of Alternative Investment firms are adopting to latest technology solutions to manage their portfolio monitoring process. The demand for this industry’s offerings has accelerated rapidly and is expected to clock USD 2011 million in revenue by 2030 according to Acumen Research and Consulting. This provides a fair idea of how the need for software solutions is picking up as more and more Alternative Investment Fund Managers focus on the assessment and management of these data points.
