How business intelligence can help private funds managers

Business intelligence should help enterprises make better decisions, as Alex Rodriguez pointed out in his recent article, Navigating Tech in Private Equity.

This means it should be integrated with decision-making processes both in terms of workflow, and the data points, metrics or analytics which contribute to those processes so that the insightful data are integrated with the relevant business process.

A data model is the place to start

There are plenty of BI tools in the market, but they are all generic and this is the first problem; none are configured specifically for the private equity market.

Without the correct data, no tool can help you. But if the management information systems are in place (accounting, investment monitoring, investor database – usually in the form of a CRM application – portfolio administration), then much of the necessary raw data are available.

Raw data, however, has limited value. A data model for the private equity sector is the place to start. Solutions vendors in the sector have a significant advantage here. They have grown up with the sector and extended our product data model to meet the needs of GPs, LPs and third party administrators. Understanding the data landscape of the private equity world is the real starting point.

Building a data model for a single enterprise is a lengthy and risky business. Those of us who have invested in data management over the years will testify to that.

A full and complete data model will include metadata: data about your raw data. This is important and represents a significant proportion of your data volume. IRR values are ‘calculated’ values derived from your underlying raw data. Account balances for particular periods (per quarter, year-to-date, inception-to-date …) are calculated data points. A foreign exchjange rate has limited value. Storing the fact that it came from a particular source (Bloomberg, Reuters …) and with a data-time stamp adds significant value to that data point. In passing we should note that the more pre-calculated data points can be populated as background tasks then the faster your BI (and Management Information) queries or reports will run. The data model has big impact on the performance of a BI application.

Centralized data are key

Once the data model is proven, including metadata, then the next step is to bring the data from the multitude of sources around the business to give a central data hub. Fragmented data will frustrate the best BI projects. Whether the dataare brought together in a database, a data-mart or a data warehouse is not so important. If the enterprise data model does not fully meet the needs of the business, then whatever BI or MI tool you use will disappoint.

Centralized data, based on a proven data model, gives you a firm foundation for BI initiatives. That data hub can feed the enterprise functions which in turn feed decision support processes; analytics, modelling, planning, forecasting and monitoring. In the context of private equity, this is the position from which you can use your BI tool of choice to report on allocations, run comparative analytics on investment performance, and build ‘what-if’ scenarios and forecasts.

Let’s not lose sight of who is going to use the BI tool. Within any private equity organization there will be technically savvy people who can build their own pivot tables from their own spreadsheets. A wider community will be happy to run pre-scripted queries which populate dashboards or template reports which feed their tasks. It is important to understand the different user types and their particular needs. In the end, it may make sense to have more than one BI tool accessing your data hub. A light, intuitive tool for one group. A more heavy-duty programmable tool for the analysts.

Understanding 

Buying a tool to visualize your data is not the first step. Understand your data first. Realise what you want from it. Bring that data together in a place and format you can report from. Speak to your user community and be clear about how the different groups intend to use BI. Then you are in a position to benefit from Business Intelligence technology.

Paul Whapham is managing director of Framework Private Equity Investment Data Management.