This year, a record number of Private Capital firms partnered with Holland Mountain for Operational Strategy projects to advance their operational goals and digital maturity.
During an Operational Strategy Review, Holland Mountain meets with each business function and compiles detailed findings and recommendations, drawn together in a Target Operating Model and an Operational Roadmap that outlines how the firm can best achieve its goals over the next 1-2 years.
Holland Mountain’s Jeremy Hocter reflects on the key findings and recommendations from dozens of Operational Reviews conducted for Private Capital firms in 2024.
What were the common reasons firms engaged Holland Mountain for Operational Reviews this year?
- Scaling business operations cost-effectively
- Optimizing tech and processes to improve the operating model
- Ensuring operational readiness to leverage AI with the right data capabilities
Below, we explore the key common findings and recommendations.
Scaling AUM without increasing operational headcount
Many firms want to grow their AUM without expanding their operational headcount. Once an adequate operational team is in place, new funds and investors should be added without necessarily requiring exponential growth in staff. Therefore, firms are keen to understand the key drivers behind scalability.
In-house vs outsourcing
The first way to grow AUM efficiently is to optimize in-house resources versus outsourcing to ensure good coverage and efficiency. Effective outsourcing means having the right people doing the right tasks while using outsourced providers as much as possible because they are the ones handling the headcount and hiring.
Greater efficiency
Efficiency nearly always hinges on data and reporting. One of the key recommendations we share with our clients is that standard reporting – whether for quarterly investor report or fundraising materials that get updated regularly – should be “push-button”.
Implementing reporting automation offers dramatic efficiency gain and bridges front, middle, and back-office processes.
Deleveraging the investment team
When investment teams grow, team members tend to start handling low- or no-value tasks.
This usually results from organic growth; the more specialist teams there are, the more they end up handling tasks because they are closest to the details. However, due to the expensive nature of the investment teams, that is not necessarily efficient.
For example, we often see this happening during investment closing processes, which involve a lot of steps, checklists, and legal requirements to get a deal done. While the team get the job done, they usually work long hours under tight timeframes and in siloes.
We work with firms to ‘deleverage the investment team’, encouraging them to think about making these processes more efficient.
We usually recommend leveraging a separate middle office function to use headcount more efficiently. This allows lower-cost staff to handle more procedural work so that the investment teams can focus on finding deals and operating.
AI readiness
Without a doubt, Private Capital firms have already been spending on AI technology this year, but they are unsure how this investment translates into value. Essentially, it all comes down to how they manage data across the front, middle, and back offices.
A better management of structured data
We noticed that firms have been improving their ability to ingest data into a data platform, like ATLAS Data Platform, and understand why they need to codify their operations. We often see firms organizing data that flows across front, middle, and back offices, which is a great advancement.
This is very positive because structured data is the easiest for AI to analyze and draw conclusions from.
- A common example is value creation. Firms are codifying value creation levers they are using, early on from deal flow and IC processes, to then tie it back to performance monitoring to tell the story of how they added value.
By clearly understanding and quantifying value added through structured data and reporting, firms lay the foundation for AI to proactively interpret and apply these insights in the future.
The challenges of unstructured data
Ideally, firms should leverage AI tools to extract insights from the wealth of documents they receive that goes beyond just manual review to build up institutional knowledge. However, document storage is usually inefficient, with files scattered across Outlook or SharePoint without using metadata. That makes it very challenging for anyone outside of the team who stored it to locate a file or information without having to ask others to find it for you.
Establishing basic document storage hygiene is critical to being AI-ready, even though the perfect AI tool isn’t quite there yet. 2025 is likely to bring “the” tool, and firms need to ensure that both structured and unstructured data are well organized for that.
Stop shadow bookkeeping
Shadow bookkeeping is one of the biggest drivers of inefficiency and severely limits firms’ ability to scale operations and add new funds without significantly increasing their headcount. Yet, over 80% of our clients still have some degree of internal shadowing.
It is essential to understand that running systems while shadowing most of what an outsourced fund admin is doing will only increase the size of their operations.
To remove shadow bookkeeping, firms must have more control in place while focusing more on data management.
- For starters, Private Capital firms should leverage their fund admin’s data-sharing capabilities and implement a data platform to digitalize the exchange of data
- With the data in-house, firms can apply quality control dashboards to look for exceptions and movements outside of tolerances to identify potential issues
- It is important to remember that the fund admin is the data owner. Meaning that if firms find an issue it must be fixed at source, by them, and fed back into the in-house data platform
- Finally, firms should take control of regular reporting and ad hoc queries using PowerBI and Excel add-ins that are fully utilizing the data from the administrator
This can drastically improve efficiency while having a more flexible operating model which will inevitably include more than one fund administrator (if it doesn’t already).
Holland Mountain offers an end-to-end solution, ATLAS Fund Admin Oversight, to help firms ingest and validate fund admin data and eradicate shadow bookkeeping.
Offering white-glove servicing
In challenging fundraising conditions, more firms offered white-glove services to their investors. Given its bespoke nature, the question is whether a firm can support the extra effort required, often manually, moving data into different custom reports.
To help solve this, firms should have all standard reporting tasks automated. When a bespoke request comes in, firms handle it initially with some configuration, and then make it part of the standard process. As firms become more efficient in their day-to-day operations, they gain the capacity to make these white-glove requests more systematic.
Even firms with poor data and reporting can start by getting the basics right. Making the routines as efficient as possible enables them to offer more white-glove service, which is a win-win for both the firm and its investors.
What to look for in 2025?
The digitalization of Private Capital has accelerated in 2024. Firms are getting much more digitally mature, and the technology and services that support them as well.
2025 will bring a new wave of innovative solutions, especially when it comes to AI and ESG, and the best advice Holland Mountain can give to firms is to stay nimble with a flexible operating model, so that if a better solution comes along, firms are able to move to it quickly.
Even if firms are satisfied with their current technology stack, it can always be replaced by something even better in the future.
Partner with Holland Mountain to achieve your operational goals
Operational Strategy
Holland Mountain supported the operational strategy of 150+ Private Capital firms globally, helping them establish the people, processes, technology and data capabilities they need to achieve their business objectives.
If you want to be operationally efficient and advance your digital maturity, our team of private capital specialists can help you achieve it.
Contact our team for an initial discussion.
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