ON THE PANEL: Justin Partington, Group Head of Funds, IQ-EQ, Jean Schmitt, Managing Partner, Jolt Capital, and Patrick Camenisch, Director Finance and Operations, Evoco. 

It is becoming increasingly apparent that technology is firmly placing itself as a key tool in private equity. Accelerated by the Covid-19 pandemic, private equiteers have quickly realised that human and technological systems go hand in hand to achieve the best outcomes.

While technology has not replaced the role of the dealmaker in some dystopian reality, instead it is assisting firms with their back-office duties. Data collection, reporting, and to some extent deal origination is being taken care of by new technologies.

In a recent Real Deals webinar, in association with IQ-EQ, a panel of industry experts discussed the future of tech tools in private equity and how they are being implemented.

Listen to the full discussion here

Origination

Kicking off the session, Jolt Capital Managing Partner Jean Schmitt offered a presentation on the firm’s deal origination platform Jolt Ninja.

To sort through the vast ecosystem of companies, Jolt has integrated an AI-led software system, Jolt Ninja, that searches for targets and gathers background information, shortening due diligence for GPs. It also highlights potential investments to review.

Schmitt said: “Initially when I started Ninja, it was a marketing tool to attract LPs. Now it is deeper, people realise we are operating in a different way and it is efficient and productive.

“Ninja is a tool that is leading our investment committees. The system automatically finds new/ interesting companies, sends it to partners that may be interested, and introduces company CEOs with investment committee partners.”

Schmitt highlighted that in the last six months, out of 62 active deals, a total of 42 (67 percent) were originated by the Ninja platform.

Looking at the asset class' use of technology more broadly, IQ-EQ’s Group Head of Funds, Justin Partington said: “For managers, we see less investment in automation, but we see investment in having the right tools and using technology be it data warehouses, portfolio monitoring software, to give their front office teams more time to spend on the analysis and to reduce the time spent manually gathering data or reports. Whether it’s manually done by the front office or the back office, it is still time that can be reduced. This should result in better reports and more time to generate better returns to the portfolio.”

Deal execution

On the deal execution side, technology is also creating greater efficiencies. Partington noted that: “smart contracts and elements like blockchain and other elements have got really good potential”.

He continued: “We noticed that Nasdaq is building a blockchain solution to track shares in private companies. That technology could be a practical application of blockchain that could speed up execution. At the moment, when buying companies in the UK, it is the old fashioned exchange of information with lawyers, selling of shares, etc., it can be archaic in that sense and this type of tech could speed up the process.”

A key benefit of using technology in the deal execution process is the time it saves dealmakers in both due diligence and management processes. “In deal execution, what is important when it comes to data processing is that you get as fast and up to speed as possible. In some situations, you have to dig through the data for weeks before you can process them and build scenarios,” Evoco Director, Finance and Operations Patrick Camenisch noted.

Digital platforms and offerings like that provided by investor services group IQ-EQ are currently being used by GPs to manage investor demand. “On the diligence side, we often get pulled into requests from managers who don’t have in-house capabilities who say, we are doing fundraising, we need this request from this LP, can you substantiate this element of our track record and can you assist with data for our fundraising,” Partington said.

Instead, having a data warehouse or capability is becoming a prerequisite for private equity managers, Partington commented. “Having the ability to take data from portfolio companies, ideally in a system-connected way rather than a PDF or Exel report, on a monthly basis and to be able to crunch your own data is crucial,” he said.

This can be especially important for managers to be able to provide quick responses to investor requests and to be able to respond to queries in a timely and thorough manner.

Moreover, a technology platform that stores data can also be beneficial on exit. “Accurate data is key to the successful exit of a portfolio company, especially with secondaries. Now, there is much more data analysis done when acquiring a company, and when it comes to exits. Having good quality data is key to having a compressed auction round when selling a portfolio company,” Partington said.

More to come

Indeed, many firms are still exploring their options and considering which types of technology would best aid their businesses. Portfolio management and deal origination are key areas where technology can drive considerable improvements and support GPs with investor and portfolio communications where reporting demands are on the up.

“We are still in the exploratory phase and we would like to implement better monitoring tools... smart contracts and blockchain can analyse financial data in a faster and easier way. This will enable ease of access to information between GPs and portfolio companies, but also LPs who are requesting the data,” Camenisch said.

The pandemic has certainly accelerated the use of technology in the asset class and this is expected to continue into the long term. Camenisch said: “PE is on the brink of a new, disruptive era. There is a lot to come and we will close the gap with listed equity. I think in five years, PE will be in a different situation to what it is in now.”

Schmitt agreed that more investment in technology will be encouraged going forward. “PE firms need to ask themselves whether they are investing enough money in technology.. they should start putting more money on the table,” he said