Back to InsightsWatch our webinar to learn how the private equity industry is embracing technology and data.
After decades of relying on Excel spreadsheets and human insight, the private equity industry is keen to integrate technology to enhance operations and do more with their own data. Cesar Estrada, Arcesium’s Private Markets Segment Head, and fellow industry colleagues discuss the shifting mindset.
Interested in learning more? Download our report, The Great Reboot, that explores the increasing use of technology and data among 50 private equity industry stakeholders. The research conducted by Private Equity Wire and supported by Arcesium finds that almost 50% of respondents delegated part of their firm’s operations externally over the past 12 months, with 78% reporting the decision ‘added value’ to their business. Read our report to explore how the increasing use of tech and data is help drive value in their investments.
ON-DEMAND WEBINAR
Speakers
Video Transcript
Gwyn Roberts
Hello, good morning. Good afternoon, everybody, depending on where you are in the world, and welcome to the latest in private equity wise series of webinars. Today, we’re dealing with the great reboots, why private equity is finally turning to technology is probably unfair.
But we are seeing more solutions be become available, and probably a greater will and collective decision amongst GPS to actually do more with their own data, which generally will be leveraging internal but particularly external technology to gain greater insights.
This has been triggered by a whole host of different issues. One is just stakeholder willingness. I think we’re finally seeing partners decide that spending money and investing in technology is vitally important.
We’ve also lived through COVID. And to some extent to still living through it. We’ve seen how automation has helped with the home working environment has helped with comms. And anything that will help with clear decision making when we’re not talking to each other unable to make those small changes to Excel documents has actually helped and sort of propelled certain firms forward.
There’s LP pressure, constant LP pressure, better reporting, more reporting, there’s regulatory pressure as well. And then there’s just the common sense of how it can extract more insight and more money from investments as well. So it’s integral to portfolio management.
Private equity has for so long relied on a lot of manual processes. So the shift automation makes a huge amount of sense, but we’re still talking about it when we’re still dealing with it. So today, I have a really good panel to address some of those key themes. I want to thank Arcesium for supporting and sponsoring today’s events. And with that said, I’m going to ask the panellists to introduce themselves. So firstly, let’s start with Arcesium. Cesar, do you want to say a few words about yourself and maybe a few initial thoughts on the topic? We can start with you first. Thank you.
Cesar Estrada
Thank you when my name is Cesar Estrada, I’m responsible for the private market business at Arcesium. We are focused on helping managers, investors, and administrators with scalable cloud-native solutions to help accelerate their data strategies and extract more and more value from their data. Very happy to be here with this group and share some perspectives on data and technology in private markets.
Gwyn Roberts
Thank you, Cesar. And Bill.
Bill Murphy
Hi, everybody. I’m Bill Murphy. I was previously the CTO of Blackstone from 2011 2020. Before that, I was one of the founding team of Capital IQ. Now I’m running an advisory business and I’m on the board of several fintechs in the space, you know, my view is that, you know, we’re getting good progress towards utilising technology, but it’s been, you know, slow going, just because the amount of investment required to really make something you know, soup to nuts foundational and efficient is still significant and still difficult for everybody to sign up for. But I’m, I’m positive on the trend lines. And it’s really driven by the fact that complexity has never been higher in the private markets. The retail investor barrage that we’re seeing across a variety of platforms have has dictated the need to use technology more LPs, like us, like you mentioned, and the regulatory requirements are continuing to drive the, you know, the need for more data and the need for more. And that’s really all on the efficiency side of how do I run my GP more efficiently. And then separately, there’s a generally slow, but growing move towards using data and decision making, whether it’s data science and public datasets or private datasets. So I think those are the two angles that you’re starting to see progress and certain firms are moving faster than others. And I think whoever does move fastest will have a meaningful advantage in their ability to scale.
Gwyn Roberts
Thank you, Bill, and Melissa.
Melissa Beam
Hi, everybody, my name is Melissa Beam. And I’m with Shamrock Capital Advisors. We’re an alternative investment advisor focused on the media entertainment and communication space with just over 4 billion in assets under management. I’ve been with Shamrock just over seven years and focus on our content strategy. And then in the alternative investment industry for over 15 years now. And I’ve always seen just great opportunity and the effective use of data. So excited to be here today and with this great panel and just to speak with all of you.
Gwyn Roberts
Thank you Melissa and Philippe?
Philippe Jost
Hi, I’m Philippe. Yes, nice to be here. I’m the head of risk and solution of capital damage. We are global asset manager focusing on private assets, both private equity and infrastructure and private credit. And in my role as head of risk, I’m using a lot of data to get some insight in the portfolio in the risks that you are currently facing. And my second role, which is head of solutions, I’m heading a team of quant where we are creating solutions for investors and for own funds, from a quantitative point of view how to build better portfolios.
Gwyn Roberts
Thank you, Philippe. I want to start with just a sense of the journey so far in terms of what where have we been until recently? And? Or is the industry making progress? So I mean, I guess start with a general question for all of you really, and we can maybe go around in the same order. But can the panel provide the audience with an assessment of exactly where you think private equity, private markets is at the moment with the treatment of data? Has there been buy in? Is there an evolving mindset that understanding data, leveraging data, leveraging more insight from data is increasingly important? And are we getting away from that siloed mindset where ops looks at one set of data, the portfolio managers look at another set of data. And there’s no sort of interplay between the two. So you can extract meaning and an insight that will help you across your business. So yeah, be really good to get some initial views of that. Cesar, starting with you.
Cesar Estrada
Yes, thank you. Yeah, look, to a large extent private market fund managers have outgrown Excel as the one hammer for all locations, they have adopted a number of what I’ll call point solutions to manage the deal pipelines, to manage portfolio monitoring, accounting, perhaps, in some cases, even waterfall calculations, treasury and investor portal. There will likely be the use of third-party fund administrators acting as the official books and records. All of the above have been adopted to a growing degree.
This systems and vendor relations are typically aligned versus a functional owner. Someone in IR owns a CRM, or an investment professional, a PMO is a portfolio monitoring finance, and so on and so forth, with no real single source of truth, to bring and master the data. Or no data layer to bring them all together for reporting and analytical purposes. So for practical purposes, while there has been that progress in the adoption and use of technology, there is still a lot of fire drilling associated with the satisfying of the data and analytical and reporting needs for this growing group of data hungry constituents. LPs, regulators, deal professionals, managing partners. And there’s still a person dependency given all of the manual offline work associated with this. You mentioned an evolving mindset. Clearly, there is an evolving mindset.
There is a recognition of the growing importance of data across the firm. And the whole investment management lifecycle. There is a recognition that this point solutions take you so far. But there’s more to be achieved; that complexity is only increasing in the private market space. You know, most successful managers these days, if you look at their product, their foreign product roadmap, but their growth strategy, in many cases, it calls for doubling of AUM over the next three to five years. And they are now no longer finding that talent to support this growth. With how manually intensive it remains. Now, it’s not only an evolving mindset. I would argue at this point, it’s kind of shifting now from the process of being an intellectually accepted concept to more of starting to internalise it. And making it more of an imperative. I think everyone is at a different stage of some sort of a data journey trying to figure out a better way.
Gwyn Roberts
Thank you, Cesar, in a minute we can turn to Philippe and Melissa to talk about how that’s working at a practical level at their firms. I mean, Bill, given that you were part of the space and you’re consulting across the space now and also working with other tech businesses. I mean, do Cesar comments rang true? What do you say?
Bill Murphy
Absolutely. You know, I think the silos are, you know, great, great islands of progress. And, but the connection of them is not where it needs to be. Most of the time, I think there’s a lot of cultural barriers to the change that’s required to really extract all the value of like, have a full digitization across every use case, at a at a GP, there are different decision makers that Cesar has talked about, there’s different power centres, there’s a, you know, a big built in bias towards doing it, how we’ve always done it, where it’s been successful. So why change? And it’s sort of like, everybody, if you ask everyone, if you should exercise and be healthy and eat healthy, everyone would say yes, right. That’s, that’s the equivalent of should we use data more effectively, to manage our business? You’re never gonna get anybody say no, about that. But then, you know, when the alarm clock goes off, and you have to go to the gym in the morning, are you getting out of bed? And are you motivating to do that? And I think that’s where, you know, there’s some short termism in the decision-making process of the firm’s because it’s hard like you have to, you have to build a sets of processes that rely on centralised system, centralised data, you have to enforce those, he needs to tell very powerful people that we’re going to be doing it differently than we used to do it in order to ensure that we have all these downstream benefits. And because the benefits are diffused but the pain feels acute, to people who have to change it, sometimes I think it’s taken a lot longer than necessary. A perfect example is like, you know, taxes, taxes are done in like six to 12 months after the accounting gets done for any given deal, right or period because of the lag in, in tax reporting. If you were to take the tax needs into account at the time of transaction, it would add like 1% to the cap to the time to add data at that time. But you know, everybody feels what am I going to benefit from?
And they don’t want to take that time upfront to benefit the tax people who are going to need it in six months. But you know, they should, because it would give us a much more streamlined process for tax. I think that’s a, that’s just a good example. Because it’s something everybody understands. But those there are examples of that everywhere through the sets of use cases for GP. So we’re getting there. But it’s about like, having a strategy and investing for the long-term gain. And everybody sort of taking that short term pain and answering that alarm clock and going working out when you don’t feel like it. So hopefully that that that’s helpful.
Gwyn Roberts
Yeah, that’s good. And those diffuse benefits that you mentioned. I mean, in isolation, they’re small, but they add up to something pretty, pretty important. I guess one of the things you didn’t mention it, yeah, it’s buy-in from senior decision makers who are used to doing things the same way, particularly during the good times where most private equity firms will be making decent returns. So why do we have to change? There’s also the cash side of it to do it properly. And second long term view potentially, it’s, it’s quite expensive. And, Melissa, I know you guys at Emerald have been going through this process, you know, digital transformation, or data transformation and making more of what you’ve gotten the great to hear a little bit about what propelled you to do that, and how it’s how it’s gone so far.
Melissa Beam
Yes, so we have grown leaps and bounds I’m sure, like so many across the industry has. And I think in the course of that we’ve seen that in order to manage more assets, and we need our data to be in an efficient manner, that we can look at it and be able to make more decisions more quickly. And to be able to manage more assets at a faster pace, just like you said, if we are working towards doubling our AUM every two to five years, you know, it takes more resources to do that. And we also took a look, I think, to piggyback on to desired point, you know, Excel with several people. It’s not scalable over time, you know, you just and so I think in the course of that we were looking at and two from the, through the entire process, we saw that there’s common data needs and common data inputs that we were managing in different silos and over the course of time, we haven’t, it won’t, it doesn’t make it scalable and in a way that we can use that information as much as we need to. And so we looked at it from the portfolio management side through to financial reporting through tax and really looking throughput to be able to use that information effectively. And I have an entire task force that has been focused on that since the beginning of the year, and I’ve been working with different data consultants to be able to make a decision for what would be a best use case across our company.
Gwyn Roberts
So far, has it been harder than expected easier than expected? And what sort of progress Do you feel that you made?
Melissa Beam
I think we’ve made progress at the pace that we had expected, I think everybody has been very dedicated and disciplined towards meeting the milestones that were that we had set out for the project, I think some of the cost was a bit of a sticker shock, we didn’t really know how much it would cost going into it. And so having to ingest that, think about it, and bring it back and be able to put a fence around it, you know, maybe a different sort of investment that’s been made by the company in the past. And so to think about, you know, is, is there ROI on this? And what will that look like, Is that the right way to think about it, you know, over the long term, this will make us more scalable and be a better outcome for the company as a whole. So, we had to get comfortable with that, and are still in the in the midst of, and I was also, across the board, there’s so many different companies that are popping up that are focused on this. And it just says to me that this is an evolving place in the market is getting focused there. There is a its own market at this point, we had no lack of vendors out there that we could have looked to work with. And I think, you know, the great ones are really set apart. And you know, some of the large consulting firms now have their own arms of their business that are acquiring different companies that are doing this specifically. So it is something that’s getting a lot of traction in the industry. And I think it will just continue to grow. And as Bill said, those who get out ahead, I think will have a distinct advantage in the long run.
Gwyn Roberts
Yeah, making sense of data is big business. And it’s interesting, we can talk about this later. But as part of your process, you’ve probably, I’m sure it’s What compelled you to do it in the first place. But that recognition of underutilised data as well that extra value can extract and Philippe, you guys Capital Dynamics, we’ve been doing this for some time. It’d be great to talk a little bit about how you look at data and how you’ve extracted value from data.
Philippe Jost
Yes, was better. So, I think first, the big decision that companies have to take is, are we going to do it ourselves. So, have an internal resource dedicated to data management and finance illustration? Or are we going to use a third party as a company, we have decided to do it internally. And finally, we ended in the second solution. It’s, it’s a funny story, I can tell you why we a while ago, couple of years ago, we decided to build up our portfolio Servicing Capabilities to a very high level. So, we were very happy with our service. And then we spun off this part of the firm, to create a fund administrator that is doing only this now with another with a lot of other clients. So, we started with an in-house solution and ended with a third-party manager.
And I must say that what we kept them in house is everything that is related to the treatment of this information is slightly different from reporting that goes out to clients. So we have 20, plus even 30 years of private equity data that we are able to use in our quantitative tools to help for decision investment decision portfolio construction, and so on, and so forth.
Bill Murphy
Thank you for just to go into add to that, like I think that the how you pick your partners, has to have data as an element or data availability as an element of that. And you know, that’s also hard, right? That’s other parts of change. When you get to start from scratch. It’s easier. But if you’ve got a relationship with a fund admin for 10 years, and you know, they don’t have a great way to exchange data with you, like you have to rethink that position and maybe move to somebody different, who is more modern, and they’re thinking about, about enabling you to control what, you know what the data says about your business. So, it flows through not just what you’re going to do yourself, but also how do your partners handle it? And then what kind of flexibility or, or lack thereof, does it lock you into?
Gwyn Roberts
Yeah, that’s, that’s interesting. And I think, you know, a lot of those legacy providers, it’s one of the impediments when you do want to start in a meaningful way, if you’re a GP, and then six months down the line, you throw up your hands because there’s a lack of integration. And Cesar you must deal with that sort of time because you’re seeing multiple clients who want to integrate their data who are using different admin admins, different custodians, how do you help with that process? I mean, do you have some good advice for the for the viewers today?
Cesar Estrada
Yes, yes, absolutely. Look, I think where we’re seeing the most value in bringing data management discipline and modern infrastructure is where, there’s two ingredients present. There’s an increasing firm-wide need, as opposed to the silo functional need, and where there’s an increasing complexity in the book of business of the client. Meaning there are, let’s say, multiple private market asset classes. While before it was one. There’s a bunch of legacy investment professional teams that were operating in silo now needing to coordinate more to create solutions for clients. There’s portfolios that cut across public and private securities, and you need to see it all in the same place. There’s a bunch of different fund products that you have active at one point in time and not all of them are drawdown commitment base carried interest as they used to. Now you have structures and registered products and other things with different economic and liquidity arrangements. You bring all that into the mix, and you end up with it’s no longer optional to do something about managing the data. And what a firm like Arcesium brings to the table is a core competency and a strategic focus on private markets data management that is system and vendor agnostic. There is no, that is the only thing the firm does. And it will integrate with any vendor or any system that is commonly used in private markets. The other thing is meeting the manager, the investor or the administrator, whoever the client in question is where they are in their data journey, right? It’s not about starting from scratch, it’s not about a big bang approach necessarily, although at times it is. It is about meeting them where their tech stack is however complicated, it might be or messy. It is about developing a tailored solution to bring value in the short term that’s. That’s really critical to get going to find short-term wins. And then work overtime to get towards the target operating state.
And I think the last couple of things I’ll mention briefly, there is an increasing desire to move towards the cloud. So helping clients start moving their tech stack to the cloud, having a data management solution that’s cloud native, to scale with it’s of increasing importance. And then a service orientation. While there is a technology first angle to what we do, we have a service arm that helps with that philosophy of meeting the manager where they are in their journey.
Gwyn Roberts
Thank you Cesar. and Melissa, would with your own firm’s journey? How helpful have your service providers been so far, I’m guessing you guys use a third-party admin and others have they bought into the process and prepared them for change.
Melissa Beam
We have we stay in close communication with them on all things related to our data. And one thing I did find interesting is they recently hired two people in house to focus on this to be able to provide more value to their clients. So as they are going through this data management project, they’ve been just another set of eyes and ears that we’ve been working with, and also getting out ahead of the use of our, you know, accounting information, all of the funds, data, and how we would easily move that over into a data pool that would be used across the board. So we are working with them directly as we’re going through this process. And they’re also investing putting real money against helping their clients do this well.
Gwyn Roberts
Yeah, thank you, there’s definitely we see a wider realisation that, I mean, let’s call them legacy vendors, some of the old admins that they have to sort of buy into this process, you know, they have to have people that will help their clients integrate with other providers. And I think if you’re not aware of that, then it’s going to cause issues for those businesses further down the line.
Cesar and Bill I mean, one of the things we’ve touched on this call is that there’s a willingness that it’s still happening in silos, you know, it could be happening at the portfolio level, it could be happening at the ops level, Melissa is working on more of a holistic solution. And I think that’s in some less of a rarity these days, but there’s a certain, you know, there’s good for your firm. And so there’s a certain amount of forward thinking that you know that to increase your AUM, you have to take this step in terms of the Holy Grail, which is this sort of single view, be great to sort of discuss about how we can fully integrate data from ops to investment? And how will that single view maybe fundamentally change the piece very soon?
You know, Bill, just in terms of how you look at the future. And you know, you’re looking further ahead, but by dint of your role, what are you seeing out there? And how could that how could that view help?
Bill Murphy
Yeah, I think that, two things, it’s not as daunting as it might seem. And I actually think that it can be done incrementally. So you know, the proper way to start on this, if you’re like, you know, if you have a bigger built up set of legacy systems and processes would be, would be okay, pick the datasets that are most used throughout your firm, and then figure out how to get a source of truth just for that. And then, you know, and then build on those datasets from there. And there’s all different types, right? There’s your investor list, there’s your investment vehicles, there’s your deals, there are your, your deal, tranches, there’s the different securities, there’s the people that you interact with the different companies, there’s, you know, so on and so forth, about, you know, every everything tracking your business. So I think it is something you could do incrementally and, and that shouldn’t scare people off. But the key point is, you can’t do any one of those things in less than complete way. So if you’re going to do investors, you have to commit to, to having a single source of truth and not violating that those like, you know, those commandments of good data quality have to be held and done across the entire firm. So I think you can build it. Now the other thing that I was going to add to your question of what’s going to make this more of a, of a need, there’s two things with the complexity continuing to grow, eventually, you just can’t hire enough people to do it manually. And people hit that. And we probably hit that at Blackstone earlier than anybody because of the scale. So that sort of forced a lot of really positive change. Because everybody realised we can’t do it another way.
But and I think more firms are hitting that now as everybody continues to expand and double their AUM, as Cesar talked about, in his intro, so. So that’s one but then also the data science piece of like, using data to make decisions in a more common way across the deal process, I think is a good, it’s not directly related to your operational efficiency use of data. But it sort of makes it more common knowledge. And oh, wow, we used we did data science to analyse whether the, you know, management projections, were actually reasonable prior to doing a deal, and we saw the benefits of that, shouldn’t we be doing that with our own business? You know, it’s slow going. But I do think that there’s, it’s, it’s a positively reinforced message every time that that gets done, people understand the value of data, and shouldn’t we be? Shouldn’t we be interrogating our own business? Like we’re interrogating our portfolio companies?
Gwyn Roberts
Yeah, and I think when it when it has a positive impact on the portfolio level, that that’s when you, you will get by and I’m guessing from senior decision makers, you know, they’re going to see how it flows down to the it flows down to the to the bottom line.
I mean, in terms of a single view and have a unifying data that’s useful to ops useful at the portfolio level, useful at the compliance level. I mean, Philippe, in terms of your risk role, how, how does that work at Capital Dynamics? And what decisions does it allow you to make?
Philippe Jost
So first, we try to unify as much as possible the data that we have, but obviously it comes from different sources, or within the administrator will deliver us the entire data set of all investments every night, so we get a refresh on all the data that we can keep and use from ourselves. We also use a lot of public information. So, from public databases, private equity, cash flows, private equity, fund performance, and so on and so forth. Also, public equity data, public equity performance, everything is then centralised in our database in that we keep internally including ethics rates, and so on and so forth. And we can then use this information for our risk management purposes. I would say one of the biggest things that we do is to put injection of the cash flows for existing private equity and private asset portfolio projection of cash flows and net asset value, which allows us to compute kind of value at risks without the risk of these assets. What’s the optimum strategy in terms of overcommitment? Where do we stand currently, with the portfolio? How could our client commit more these years? What should? How should they see on their portfolio? That’s all these questions that we answer with a quantitative background. And I would say we do it internally here for our own portfolio. We also have couple of clients that are just with us for this.
Gwyn Roberts
Thank you. I think one of the one of the things, it would be great for the audience to find out about actually is how you achieve that, you know, what is the decision-making process? Is there a committee that’s built around it to make those decisions and make sure that it happens? I mean, the this was for the has an internal Task Force, you know?
I mean, Cesar because you work with so many clients, what is the best way to make this transition work efficiently? It’s, is there a senior decision maker propelling it is a committee? What are the sort of if you’re looking at a good case study about best practice? What do you think works?
Cesar Estrada
Yeah, there are a few things in common with, with that idea of how those best practice looks like. I think one of those Bill already mentioned, which is having a mindset of approaching it incrementally and looking at what the business use case is, what is it solving for? And how is it solving it in a better way. That is one. There has to be a champion who treats data as an asset. Someone has to be accountable for it and champion it and be the evangelist for this at the firm.
Bill Murphy
I like to double down on that Cesar. To me, far and away most important thing is somebody with power, who’s the real champion who helps drive the cultural change. One private equity firm once told me the story where they’re their men, they use data, as well as anybody and their, their new managing partner pulled in the technologists and the data people and said, I want you to make every professional at our firm uncomfortable with the amount of change because I really want to embrace data, and I will stand up with you to force that change. And you know, that I thought that was like that was the gold standard of the types of support. You would like if you were the person who’s trying to make that change happen inside of an organisation. So didn’t mean to cut you off. Cesar, I just think that that that top down, buy in is so critical. If you want to go fast, it’s required. Maybe you can go incremental. Without it, but it’s painful for the practitioners who are trying to make it happen.
Cesar Estrada
Yeah, no doubt. No, that’s the number one for sure.
I think going incrementally is still the most practical way of gaining momentum and not getting people, at times, just tired of a big effort where you don’t see the value quick enough. The other angle to that same dimension is you probably want to start by unlocking value from your own data first before you get too fancy. With all of the new different sources of data available. Obviously, you have to do a little bit of both at the same time. But keep in mind the value of your own data first there’s the biggest riches are there in the foreseeable future.
The other item is there is no need to throw everything away and start from scratch. You can have an actionable value-add program that’s incremental that does not disrupt your current infrastructure and go through costly replacement projects. You might still go through those over time when the time calls for it. But you don’t need to do this to achieve more value of your data. Those would be some of the things that come to mind.
Bill Murphy
With that being said though, I do think that sometimes the expectations of incremental value are unrealistic. You know, like if you’re rebuilding an entire system, and the benefits are like when everything is rebuilt, you’re gonna be more efficient. It’s almost like building a bridge.
Right, no one would ever say I want you to pull up build another bridge between New York and New Jersey. And then but you know, I know it’s going to cost $2 billion, but like, I need to see value in the first $10 million. Right? Like, you’re not going to be able to get from one place to another until the whole bridge is done. Right? And I think so I don’t think it’s quite as stark as that example, would, would paint it, there is some incremental value to be had.
But oftentimes you know, the conversation is so like, I know, it’s going to cost $10 million, as long as we’re seeing value after the first 100,000. I’m all for it. And you’re just like, well, okay, well, then let’s not even start. So, I think that that ROI, incremental ROI demand is sometimes a real date stops progress in its tracks. I think there needs to be a bigger dream, and people have to buy into that bigger dream and not just say, you know, I want us to feel the benefit tomorrow.
Cesar Estrada
Yeah, it goes back to your, to someone’s point about. I think it was your Bill about, hey, let’s apply the same type of rigour and use we do when we’re making investments. If it’s an early-stage concept of proving out a new concept and your business model in the marketplace, you’re not going to be looking for the ROI by year one. It’ll be over time. So it is those same mindsets and frames that need to be applied when thinking about this.
Gwyn Roberts
Thank you, Melissa, in terms of your approach to your project and looking at it in terms of ROI. Do you have a timeline in mind? Or is it already baked in? I mean, when will you see a return from the capex of new systems, new service providers? Thanks for integration.
Melissa Beam
That’s a good. So we’re still in there? I don’t have a direct answer is my answer. I think we’re as far as ROI we expect for it to obviously have the benefit. That’s why we’re making the investment and I don’t but it we haven’t, we’re not looking at it, I guess, in the traditional sense. And we’re kind of at that phase right now, where we’re still making the decision, I would say we’ve gotten the proposals and have gotten our head around what the range is of what the cost would be. And then, you know, what will that look like when we actually put it into practice? And across the different stakeholders? What is the ROI on each one of them.
But, you know, we do have buy in from, from the leadership, that for the project. But as far as that ROI, and I think we you know, Bill, in the course of having conversations earlier, and call it the way that companies are looking at value these days or making decisions, it’s perhaps not in the traditional sense of how ROI has been looked at in the past. And I think that’s an interesting way to think about it, as well, you know, these isn’t, we’re not buying a building this is, you know, I can’t amortise the cost necessarily over this, what will be the ongoing maintenance cost of it? You know, and, and perhaps some of that will be less traditional than what we’ve seen in the past. So I do think that we’re looking at it that way. You know, and, and I think that will continue to evolve. It’s because the decision-making process.
Bill Murphy
That’s really, that’s really, that’s really critical is like the benefits are not in the technology team of any of this as front is not in Data Management Team, either the benefits are, you’re going to have less accountants, so you have less tax people or you have, you know, less regulatory compliance costs. So, you’ve got to make sure that you roll up all the benefits in any ROI model, and not just say, you know, oh, wow, your technology spending is going up by a lot. Technology is investment that’s benefiting everybody. Right.
Gwyn Roberts
Thanks for that. Both pretty good answers, actually. And I think I mean, one of the one of the things that everybody’s mentioned, is buying in, and we’ve had a question from the audience, which sort of aligns with the next, the next point I was going to make is, you know, how, one how do you change digital culture? You mentioned internal champions, you mentioned getting fired from senior leaders. This question is sort of twist on that and maybe bill you might be in a good position to answer it’s where does most resistance towards this cultural change come from? And how is this resistance dealt with? I’d rephrase that and say, how do you deal with that resistance? You know, how can you create a coherent response and show anybody at the senior level who is resistant to change? Why it can help a business?
Bill Murphy
Yeah, I think it’s the resistance is from people who are not immediately benefiting, right? Where every all the benefits are downstream or to the firm. And to them it feels like just another bureaucratic. Uh, you know, steps that I need to go through, for instance, you know, if a deal professional needs to put a deal into a CRM system so that we can track all the deals we’ve ever done so that we can draw upon that, on that expertise there, they’re getting no value in the moment, right? They’re like, I already have my deal going on. And why do I need to track that and everything is fine the way it is. So. So in those cases, it’s really not possible to give them immediate value. So you need enforcement mechanisms to basically say, I’m sorry, but just like we all we all have to, we have to do a lot of things because of regulatory compliance, because of the basics of business, this is just another thing that you need to do. And, you know, we’re not going to discuss your deal unless it’s in the system, or we’re not going to fund your deal unless the investment vehicles are created correctly in the system, or, you know, whatever other types of management gates you can put in place, such that they can, and then obviously, try to make that pain as small as possible.
If your CRM system stinks, and like, it’s really hard to create a new deal, and you’re and you’re making it a slog, then you’re obviously going to have more resistance than if the UI is great. And as simple and, you know, people do it for you almost, then then, then obviously, the folks are going to be more likely to comply.
Gwyn Roberts
Thank you. And similarly, Cesar, how do you get changed, right? So you know, GPS have to have the right conversations internally, you have to get buy in from the top people, you know, from the CEO down, and Bill’s point is really is a really good one who may not see the benefit straightaway, or may need it explaining in simple terms as well. And how can how can you as a sort of crucial part of that change is a key service provider? How can you help with that? And how do you navigate the process of change management?
Cesar Estrada
Yeah, look, from our perspective, we come in to use Bill’s word, “help make the pain smaller.” That’s where we contribute, changes stuff. And we help managers, investors lower the bar for that change. That’s how we can contribute to that cause by bringing and exposing them to what has worked for others and how it has worked. By behaving as an extension of their firm and, and in lowering the bar in doing a lot of the things that are not, or what they want to be doing. And taking care of a bunch of things. As a fully hosted cloud, native technology, we take care of all business continuity planning and disaster recovery, penetration, testing, upgrade, so on and so forth. So, you don’t have to be thinking about those things and the data integration inbound and outbound with all of the applications in your stack and your third-party vendor stacks. We tried to maintain those and get you out of that business as well.
And then in terms of accessing the data to give you choices to tailor to the different preferences even within a single firm, that will customise as dashboards or open APIs or via Snowflake as is becoming popular these days. Or even refreshing Excels if that is what you so desire. So, minimising the pain of adopting something new. That is for the greater good is how we try to contribute to help affect change.
Gwyn Roberts
I think that’s a good point. Minimising the pain, there’s no easy way to get by and if you can make it easy for people or easier for people, then I think you do get a certain amount of engagement. Really, really quickly because we haven’t got a huge amount of time left, actually but begin to look ahead. There has been more engagement with tech. And I think the key reason for that is because people want to extract more from data, they want more integration. And that’s not going to stop. But we are into entering potentially entering trickier times choppier markets.
Can better tech help with that can the Insight arrived helps you to insulate against tougher times, you know, spending money now or good tech that produces good data? Is that going to help you in the future? Bill? You mentioned the inbuilt cost savings it means that you don’t have to rely on as many accountants as many compliance people potentially but what else can it do particularly as we’re about to sort of turn a corner perhaps we already have into a world that’s very different from it was how it was a few years ago, certainly pre COVID Philippe maybe you can you can take a stab at that.
Philippe Jost
Yes, I think you have spoken of what could be the economy’s in terms of accountant, if you have a good system and so on. We have also spoken about risk management that you can do better if you have a good quality of data. And I think one that is triggering both an advantage in the future and moving from so in this direction are the requirements from the clients. What I’ve seen over the last years is that the operational due diligence is that are done on us as a manager are becoming more and more important to find a bigger bigger, we have more more questions and a lot of these questions around data, how do we manage data? Where is the data? How is it treated? What is the security and so on and so forth. And we have also recently seen managers, so investors pension funds that do two separate due diligence, one that is operational, and one that is on the investment side. And both of them have to be passed. So I think, going forward, having a clear and well set up data management will allow you to do business. Whereas if you don’t do the change, you might be out of business in a couple of years.
Gwyn Roberts
Thank you, Philippe. And Melissa, yeah, entering new economic times. How is the process you’re going through at the moment? How will it help in the future?
Melissa Beam
Yeah, I think that just having better information helps you to make better decisions in the midst of a choppy market. So, I don’t know that it will necessarily allow for us to insulate completely, but I do think that it will just help us to fare better in the midst of any choppiness that, that we may feel. So, I think, you know, we stick to the fundamentals, right, their markets go through cycles, and I think they can just look to the long term, we will always, you know, just make a decision. So, I think that the data management will help us to do that. And we’ll use that information to make a decision.
Gwyn Roberts
Thank you, Melissa. And Bill.
Bill Murphy
Yeah, I mean, in public markets have done the risk analysis that’s like talked about, like, you know, for the last 20 years in a really sophisticated way, because all the data is available. So, you can analyse multiple different scenarios, you can shock test your portfolio, you can, you can put percentages in on what you believe the future will be, you can have up to the minute view of what your portfolio is going to do in a variety of different scenarios. And unless you spend the time putting the data in in a way that is usable, you can’t do that in the private markets nearly as easily as it can in the public market. So, I think a downturn will show the value of making those investments, because everyone’s going to be doing those risk based, you know, like, anytime a, you know, a hurricane is going to hit everyone scrambles around like, what do we own in North Carolina? And how do we make sure that we’re not going to be you know, impacted? Or, you know, COVID? What, how’s it going to impact us and being able to query your data in a, in a really compelling way is especially
compelling in choppy markets, the negative of the choppy markets is, is it going to lead to a lot of people making bad short-term decisions, and, you know, cutting all their tech spend, because oh my god, we have to, we need to save money now. And therefore, like putting those benefits on hold. So I think you’ll start to see some of the players who, who made the investment beforehand, really benefiting from it during this this time. And, you know, maybe hopefully, that’ll just help the industry learn from those from the investments that they make.
Gwyn Roberts
Thank you, Bill. And Cesar, I mean, any closing words on the future, and even trends that you’re seeing now that you haven’t been seeing 6 months, 12 months ago?
Cesar Estrada
I think that choppier markets is one of the things seem to play in the dynamic here, but irrespective of it, that and coupled with the talent crunch. And I think private markets is going to get more complicated no matter what.
I think digital transformation is happening across other industries at a faster pace. I think that it will be a bit overwhelming not to start adopting new technologies. When you think about what’s ahead. There’s more multi-asset class portfolios that are being built as a solution for investor. There’s this big, long-term trend of the retailization of private markets will add a fair amount of complexity when it comes to dealing with data. There’s this desire of being able to track the lineage of the capitalists if they’re transformed in the lifecycle on a deal by ideal LP-by-LP basis, there’s been increasing use of ML tools. We’re already using it to ingest unstructured data and support the data mastering and reconciliation. But there’s many more use cases. Supporting predictive analytics as Bill was saying on scenario planning, what if analysis on a real time basis with no restrictions.
And then there’s all of that stuff, on NFTs, and blockchain, and the metaverse and what does that even mean in the context of private markets and the different asset classes that will be created and the associated data? There’s a lot here to be thinking about. And managers don’t have to go at this alone.
And that’s, that’s where I’ll leave it, when, in the interest of time, thank you.
Gwyn Roberts
Cesar I think you’re right; I think it’s the evolving complexity of this space will compel people to do something about it. I think, as managers grow, and most have grown over the last year, two years, five years, either, it’s, it’s become really obvious that without a coherent solution, you will struggle and you will lose, you will lose out or, you know, you’ll lose out to LPS who expect better, you’ll lose out on opportunities, the opportunities, and you also have the regulators to consider as well. So, I think, because of the complexity because of the change, because of the just the huge growth the space has seen.
You know, we are seeing a widespread adoption, and definitely a shift in mindset. And I probably wouldn’t have been confident enough to say that even two years ago, I do think it has changed. With that. I want to thank everybody today. I want to thank the audience. Thank you for the questions. Thank you, Cesar. Thank you, Melissa, thank you Phillipe. Thank you, Bill.
If anybody wants to follow up with us or with Arcesium or with anybody on the panel today, do let me know, our contact details are on the website or drop us a line happy to help with any questions and any follow ups. But once again, thank you all for joining and thank you to the panel. Thank you, goodbye.
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