In 2022, a record number of Private Capital managers undertook a Holland Mountain Operational Strategy Review to help position their firm for competitive advantage.
In this series, Holland Mountain’s Head of Consulting, Jeremy Hocter reflects on the key findings and recommendations from Operational Strategy Reviews over the past 12-months.
During an Operational Strategy Review, Holland Mountain considers a firm’s current operational setup across four categories: people, processes, technology, and data capabilities. Our team of Private Capital experts benchmarks the business against its peer group and industry best practice, and provides recommendations for the short- and long-term. These recommendations are drawn together in a Target Operating Model, and 2- to 3-year Operational Roadmap showing how the firm can most efficiently achieve it.
2022 Themes: People
A further shift in the skills that firms need
The hiring profile for operations teams within PE firms continues to evolve. Where firms once prioritised accounting expertise above all else, there is increasingly high demand for people with digital skills.
Most firms now have robust accounting solutions in place, so they need people that can manage these systems and help teams maximise their benefits. Business intelligence skills are particularly sought after, with firms seeking to roll-out tools like PowerBI on top of their operational systems. In our experience, it can be advantageous for these digital advocates to be embedded within business teams rather than IT, so they’re close to their team’s requirements and can provide a quick turnaround on the intelligence needed.
Hiring challenges & high attrition
While demand for these new skillsets is at a peak, firms are experiencing hiring challenges and high attrition rates across the board. Where firms are unable to source the digital talent they need, they are looking to support their existing teams through a combination of technology and outsourcing solutions. By transferring ‘non-core’ or highly manual activities to specialist service providers, GPs can enable their teams to focus on value-add tasks.
2022 Themes: Process
A renewed focus on process
Most firms have implemented core technology across front, middle and back office operations, and are shifting their attention to process improvements. There are significant benefits for firms to unlock through a process review, as it helps to highlight opportunities to increase efficiency and standardisation.
The most technologically advanced firms are using process automation tools like Appian, Pega and Unqork to reach the next level of digitalisation. One area of Private Capital operations realising the fastest gains from process improvements and use of automation tools is the interaction between the finance team and the firm’s fund administrators. Over 40% of Holland Mountain’s Operational Strategy Review projects during 2022 focused specifically on this area. Read more about this here.
Process documentation is key
The first step towards improving and automating processes is to document what they are today. We find that the majority of Private Capital firms have little to no record of processes being followed, which holds back their journey to digitalisation. This issue is often highlighted when a key individual leaves, and the firm struggles to quickly fill the gap. As such, the high attrition rates, experienced by some Private Capital firms but particularly by fund administrators, have been a driver for the increased focus on process in 2022.
2022 Themes: Technology
Compared to previous years, most Private Capital firms now have the three core systems in place, including:
- A CRM system to support deal flow & fundraising
- A portfolio monitoring system for portfolio company data collection and monitoring, and
- A fund accounting system (either internally or via a fund administrator) in the finance function.
With these strong foundations in place, the focus has shifted towards non-core tools that can enhance these core business systems and fill niche gaps in digital functionality.
Examples of these are:
Investment & IR/Fundraising:
- Relationship intelligence tools that can identify which employee has the best relationship with an individual. Specialist tools such as Equilar and RelSci can be integrated with CRM systems. The major CRM solutions such as Affinity, DealCloud & Salesforce are also developing their own specific relationship intelligence functionality.
- We’re seeing rapid technology innovation focused on enabling a seamless end-to-end investor experience. This is a fast moving space, with new specialist technology being developed, alongside the enhancement of existing investor portal solutions
- Valuations are a noticeable gap within the otherwise mature portfolio monitoring vendor market, with most Private Capital managers still heavily reliant on Excel. New technologies are attracting interest from GPs looking to digitise their middle office fully. Managers are also focusing more on digitalising value creation, considering solutions like Maestro.
- Add on tools can add particular value in the back office. AP automation tools such as Yooz are increasingly popular and can add significant value for a relatively low cost. We’re also seeing increasing numbers of managers leveraging treasury management solutions.
2022 Themes: Data
The importance of data has been a key topic of conversation in the Private Capital industry for several years Many of the leading firms either have data integration & advanced analytics solutions in place or are in the process of implementing them. However, many firms report that unlocking the full benefits of these solutions requires a significant shift towards a ‘data culture’. Without a firm-wide focus on data, it can be difficult to successfully embed these tools and realise their potential.
Another challenge firms are experiencing is that, while data platforms increase access to data, this often highlights issues with the quality of data. Data platforms will not solve a firms data challenges unless there is effective data governance in place.
Holland Mountain has worked with some of the leading Private Capital firms to help them implement data governance and achieve a data culture. This requires executive-level championship of the importance of data from the top, as well as ensuring effective data ownership is in place from the bottom up.
Learning from Operational Reviews in 2022
Despite ongoing turbulence in the markets, the outlook for Private Capital in 2023 remains positive.
Private market assets are currently valued at $9.8 trillion and expected to grow to $14.4 trillion during 2025. This growth will continue to fuel the need for digitalisation and increased efficiency, which means firms focused on solving these challenges will be poised to reap the rewards.
Jeremy is a leading expert in Private Capital operations, technology and data. He has 20 years’ experience advising GPs and LPs on operational strategy & best practice, alongside delivering successful change management engagements. He has a wealth of experience working with all the major industry software vendors & service providers, and a detailed understanding of the capabilities & limitations of available solutions.