Fund Europe: Digitisation in private market investments

Authored by: Christophe Ponticello, Commercial Director, Europe
Updated on: January 30, 2024

Digital solutions and data management have become strategic advantages in private markets as limited partners favour sponsors that can facilitate timely access to financial data and portfolio information, says Christophe Ponticello of Gen II Fund Services.

Today, increasingly volatile and rapidly changing financial markets are contributing to the private market’s reliance on digital platforms and solutions, particularly as limited partners (LPs) have come to expect agile and intuitive processes that enable customised reporting and improved portfolio transparency.

While Luxembourg has always had a private equity (PE) presence, its role as a PE epicentre has grown since Brexit. As a rapidly growing domicile for private equity and venture capital investment funds, digitisation plays a key role in fund launches, regulatory and compliance support, and investor reporting.

Also, as the private markets have grown and diversified over time, the increasing number of private equity investment options by geography, strategy and ever-larger funds have given investors more choices than ever. As a result, digital solutions and data management have become strategic advantages as limited partners favour sponsors that meet increased expectations, offer transparency and can readily facilitate timely access to financial data and portfolio information.

Managers clinging to legacy processes will be left behind

While raw data in spreadsheets and manual processes may have been acceptable in the past, the pandemic set in motion changes to how limited partners and general partners (GPs) communicated. Digital platforms were able to offer access to consolidated data, enable general partners to communicate on a weekly basis and even provide on-demand performance updates. As a result, investors have become accustomed to and have come to demand transparency and real-time accessibility to data. Fund managers that cling to legacy manual processes will be left behind in this highly competitive environment.

The current economic challenges are putting further pressure on fundraising as GPs face increased competition for capital. Last year, private equity fundraising activity fell 58% in the first nine months, according to Preqin’s 2023 ‘Global Equity Report’, which estimates that the number of investors expecting to have increased allocations to the asset class over the next 12 months has declined.

A well-run back office is a critical success factor for emerging managers in the current economic environment. According to our research, only one in ten respondents secured a commitment four months after an introduction – far below the 31% who did so in 2021.

In addition to accessibility, market participants have seen the benefits of digitisation over unstructured and disorganised data. Digital systems make the data usable, digestible and accessible, attributes that are necessary when funds must increase their efficiency, manage complexity and deliver information in real-time amid changing market conditions. LPs now expect that they can readily download cash flows or get a single view of their investment holdings, and they’ll expect GPs to enable this level of easy access.

Singular focus 

For fund managers – whether they are building a presence in Europe or other markets – digitisation is not always a solution that can be developed and implemented in-house. The evolution of how data is shared and parsed calls for developing infrastructure, training and staff with a singular focus. And assembling it in-house requires building costly digital infrastructure, specialised expertise and is resource-intensive.

The increased complexity and the vast amount of data created by the rapid evolution in the private markets means GPs will need to be flexible and agile enough to handle any new products, channels, investors or regulatory requirements.

About

Christophe Ponticello is Country Head of Gen II Luxembourg Services S.a r.l. of Gen II Fund Services. Gen II is a leading fund administration provider focused entirely on serving private capital asset managers and investors, enabling clients to realize greater levels of control, quality, consistency, efficiency, and transparency throughout their business.

This article originally appeared in Funds Europe. The opinions and facts included in the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Funds Europe providing the information in this content accept no liability for any decisions taken in relation to the above.

Published on: March 20, 2023