Timing is crucial for tech upgrades
A positive culture, timing and employing easy-to-use systems are the keys to the successful deployment of technology at private equity firms, according to a panel of tech experts.
They agreed that while upgrading systems may seem like a huge task, the benefits of doing so do make it worthwhile. Established firms may be daunted by the prospect of overhauling their systems, but there are products available that can make the transition smooth and efficient, a technology firm’s founder said.
“About three years ago we decided to review our approach and began working on a solution that brings together data that may be sitting on different systems and within different programs. Bringing technology up to date doesn’t have to be a five-year task,” the speaker said.
He added that the most successful technology transitions are made against a backdrop of firm-wide support.
“It’s important that you choose the right time and the right project to implement the change,” the chief technology officer of a large private equity firm agreed. “And if the senior management are not on board, it’s unlikely to get far.”
When choosing a solution, the speakers said firms should consider ease of use, including making sure staff can access the system from any device, anywhere.
“Simple things, such as making sure email is optimized for the iPad or a mobile phone, that it has functionality away from the office and that its operation is logical are all very important,” the CTO said.
He added that if a firm does not have a dedicated technology team, it is wise to employ someone – internally or externally – before undertaking a technology upgrade.
“You might have an IT helpdesk, someone who helps with your computer issues, but that person is not trained in security, they can’t implement a cybersecurity policy for example, they’re not trained to take on a system upgrade,” he said.
An office expansion, or establishing a second or third operation, may also prompt a firm to hire a dedicated technology specialist.
“If you’ve one office and a small staff you probably don’t need a dedicated CTO, but as soon as you start to grow, or expand into other geographies, things become more complicated,” he added. ?
LPs quiz CFOs during manager due diligence
Investors are doing more due diligence on back-office teams as a result of the regulatory crackdown on private fund firms, according to market sources.
A panel of investors and fund managers said operational due diligence has become almost as important as investment checks when a limited partner is considering a manager.
“We had a number of investors sending in separate teams to speak with our CFO, CCO and general counsel during our last fundraise, more than ever before,” the head of investor relations at a global private equity firm said.
Operational due diligence teams wanted to be sure the general partner had everything in place for a Securities and Exchange Commission examination, and to understand what steps the firm was taking to ensure regulatory compliance, the IR head added.
“No firm is going to get a clean bill of health from the SEC, but investors want to be sure that the firm has the right policies and procedures in place, and that if the SEC does come in to examine them, there won’t be any big surprises,” he said.
The panelists said investors asked to meet the accountants and examined their valuation methodology.
As an investor, operational due diligence can put your mind at ease on regulatory issues, and helps you to build a better relationship with your GP partners, one LP said.
“We’ve been doing operational due diligence for a while. It means we know exactly who we need to ask if we have specific back-office questions, and it makes us feel like we are getting fantastic client service,” he added.
Communication key to avoiding compliance pitfalls
Customized marketing materials and a rush to get information out are the key causes of compliance issues in investor relations teams, according to a panel discussion on IR and regulation.
Slides or PDFs sent to one investor do not count as marketing under the regulations, but in many circumstances it is difficult to ensure that the content is going to a single person, the panel said.
“You’ve got to be sure a piece is really only going to be seen by one person. It’s not inconceivable for a slide to become popular and end up in a marketing deck, suddenly exposed to marketing rules,” one compliance officer said.
In instances where it’s necessary to get information out fast, attention to detail and accuracy can suffer, raising compliance issues, the panel also said.
“To avoid this, our firm allows time for an extra level of review in the case of ad hoc reports,” a second CCO said.
During the review process the team applies a high level of scrutiny to ensure the appropriate disclosures are made, he added.
Ensuring there is an ongoing dialogue between the IR and compliance team can help a firm to avoid some of the marketing compliance pitfalls, the panel said. ?
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