As private capital managers build more sophisticated technology that enables data-driven decisions, nothing is more disheartening than finding that the various systems the firm uses give different answers to the same question. If the computers can’t agree on the cost basis for an investment or even the phone number of an LP, why should anyone trust anything they say?
It’s no surprise then that a recent discussion about technology at private equity firms kept coming back to the quest for “the single source of truth.” The occasion was at the recent Intapp Connect Conference with DealCloud, a Cobalt partner, titled “Offense and Defense: How Finance Firms Build, Maintain, and Protect Data Ecosystems.” Participants were Rob Kaufman, Vice President for Investor Relations at FTV Capital (a Cobalt Client), and Chase Paxton, Director of Finance and Valuations at NGP Energy Capital Management.
Each professional emphasized both aspects of the goal:
- Having only one answer for any question
- Ensuring that the data was as close to the truth as possible
Here are the five most useful insights from the discussion:
- Consolidate to the “best-of-breed” system for each function.
In theory, the best way to create a single source of truth would be to put all of a firm’s information into one system. In reality, Kaufman and Paxton agreed, no one software suite could handle all their needs. FTV has been trying to reduce the number of systems it uses. It consolidated a lot of data about investors and deals into DealCloud. But it concluded it needed specialized tools for a few other functions. “We’ve always had a best-in-class class technology ecosystem,” Kaufman said. “For portfolio company information, Cobalt will be the single source of truth. And Investran will be for accounting and finance data.”
- Connect all systems.
NGP is reducing the potential errors from inconsistent information by connecting all of its systems together using application programming interfaces (APIs).“A lot of data gets captured in multiple places,” Paxton said. “We want to get away from producing a report in one system, and then someone manually puts it into another because that creates a lot of issues with a single source of truth. As FTV builds out its portfolio monitoring and accounting systems, it is keeping them separate from its DealCloud CRM. But it is using a design that will allow them to exchange information in the future.“The same portfolio company lives in DealCloud, Cobalt, and Investran,” Kaufman said. “We want some connectivity, so someone doesn’t have to look in multiple places to find information about a particular company,”
- Swear off spreadsheets.
Perhaps the most important way firms can improve their data quality is to wean partners and staff from the spreadsheet habit.“We’ve got really good systems in place,” Paxton said. “We continue to need to make decisions at the firm not to store information in Excel. The more we can train the firm to put data in the system, the more successful we can be with our overall data strategy.This is more challenging than it sounds. While FTV also is trying to move all of its data into the cloud, Kaufman conceded that “I use a few Excel schedules all the time. They could live in the cloud, but I really like them, and someone is going to have to forcibly take them away from me.”
- Encourage self-service.
One powerful way to ensure that data is accurate, Paxton said, is to encourage everyone at the firm, especially the partners, to interact directly with the systems rather than asking associates to print reports for them.“It’s important for the people that supplied the data to take ownership and see kind of what the output looks like,” he said. “The more senior leadership is using the dashboards and questioning the data, the better data quality that we get.”The work-at-home regime of the last two years has encouraged even more adoption of cloud systems by senior leaders, Kaufman observed.“Pre-Covid, we’d print three hundred pages reports for our investment committee meeting, and at the end of the day, you’d see piles of paper in the recycling bin,” he said. “Now we don’t print anything, and people are being much more resourceful about using technology.”
- Prepare for lots of questions.
Investment firms are receiving a lot more requests for specific information from limited partners than ever before, often long questionnaires related to environmental, social, and governance (ESG) issues. To answer these questions efficiently and accurately, the firm has to commit to keeping its cloud-based systems up to date.“We got a hundred ESG requests last quarter,” Paxton said. “We want to be positioned to be able to easily not only show that information but also show the improvements that we’re making internally. The data, data quality, the analytics, and presentation are really significant.”
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