Once a private equity commitment is made, the type, depth and volume of information insights available to the investor can change significantly. In this post we explore how an enduring research management system can bridge this divide in private market investing.
The language surrounding private equity investing makes the process sound very collaborative. Talk of ‘alignment of interests’, ‘commitment’ and ‘partnership’ suggest a marriage of equals between investors and fund managers.
However, prior to this long-term partnership there is usually a long engagement of due diligence where the investor probes and tests the claims of the manager. This process can take months or even years if the relationship is a new one. The point at which a commitment is made is a turning point where something that has been prospective becomes actual, the work switches from due diligence to monitoring, and the process moves from pre-commitment to post-commitment.
For many organisations, the shift from pre-commitment to post-commitment is not just a nomenclature change but marks a difference in systems and even teams. Investment details must be entered on to the portfolio management system (PMS) and the nature and frequency of data being captured changes. There is, in effect, a real divide between pre-commitment and post-commitment. How much knowledge is being lost in this gap and does this divide even need to exist?
Carrying pre-commitment data through to the post-commitment phase
An employee of a large Canadian Pension Plan once told me that fund managers invariably share far more information during due diligence than they do once you become an investor. The information shared post commitment is often prescribed in the limited partnership agreement (LPA), whereas due diligence meetings are far more wide ranging in scope.
How invaluable is it then for all the knowledge collected during due diligence to be carried over post-commitment and not merely confined to an archived folder on some server somewhere? How much more valuable would it be when facing a key person trigger event if, instead of just checking the appropriate clause of the LPA, you could instantly review your interactions with that person or conversations that took place when negotiating the clause?
A dedicated Research Management System (RMS) that unifies all of your interactions, documents and work flows is the way to bridge the pre/post-commitment divide.
Continuous insight throughout the investment lifecycle
It is worth noting that this divide doesn’t just stop knowledge transfer from pre- to post-commitment, it also means that up-to-the minute portfolio monitoring data is not readily available to those on the road doing due diligence for follow-on commitments. Having the latest manager’s report or details of an impending distribution means that your diligence fully reflects where the portfolio is today. Knowledge should be a continuous thread across all interactions and processes.
The pre/post-commitment divide is also at odds with the fund manager view of the world. The ‘always raising’ mantra means that every post-commitment interaction is laying the foundations of the next fund raise. The investor experience of distinct stages in the lifecycle is largely driven by the nature of their systems, which is an artificial divide. Instead of a pre/post-commitment divide, the investment process should be viewed as a continuous cycle. All data and knowledge should be captured throughout, as it is via an RMS.
How an RMS helps private market investors
Examples of how a good quality RMS like Bipsync is helping private market investors include:
- Capturing all due diligence documents, interactions, and internal recommendations, including for declined opportunities so that these can be easily revisited in future.
- Facilitating your proprietary due diligence workflow with checklists, process steps and notifications/hand-offs for different stakeholders, with audit trails in place for compliance and leadership review.
- Using automated alerts and tracking to ensure no actions are missed. For example, enabling all capital calls and distributions to be undertaken efficiently.
- Surfacing portfolio monitoring data so that it is readily available across the firm to review, perform valuations, etc. and not just the finance team.
- Integrating with other systems including portfolio monitoring tools, team collaboration platforms, market intelligence sources via its powerful API library.
About Graeme Faulds
Graeme brings over 25 years’ experience as a professional private equity investor, technologist and entrepreneur. Graeme most recently worked for Nasdaq, Inc. where he focused on their technology solutions for private markets. Prior to that, he built his own performance analytics software company that was acquired by eVestment Inc. Before becoming an entrepreneur, Graeme spent 15 years as an institutional private equity investor across both Europe and North America. In addition to the Bipsync Board, Graeme has sat on the advisory boards of a variety of private equity funds during his career.