Private equity (PE) data management and the ability to leverage PE big data effectively and efficiently are of growing importance for firms seeking long-term growth and sustainability. As the number of firms grows, the opportunity cost of not utilizing data-driven decision-making in private equity could be the difference between success and failure.

Acquisitions and ongoing tracking of portfolio companies are data-dense and can be labor-intensive if firms aren’t properly leveraging the tools at their disposal, but data integration doesn’t happen overnight. Well-thought-out data strategy in private equity can position firms to use data most effectively to drive growth and maximize returns within their portfolio of companies. 

Private Equity data strategy

In building out a data strategy framework, the goal of any firm is to create on-demand analytics that can provide real-time insights into the performance of their portfolio companies. Data integration in private equity is an ongoing priority as each new acquisition comes with new data sources, metrics, definitions, etc., that can create complications in proper reporting, especially in the case of roll-ups

Private equity big data and analysis provide an opportunity for firms to more effectively and efficiently measure success, track financial performance, improve operations, and much more. Generating a data-focused strategy is the first step for firms looking to generate on-demand analytics and reporting; and it requires them to define the technology, processes, people, and private equity data governance and data security required to manage all assets effectively and safely.

Key Components of Private Equity Data Strategy

Data optimization for private equity is key as firms continue to expand acquisitions, but this can only be achieved through the development of a sound data strategy. It requires front-end work to get off the ground; however, the benefits of PE digital transformation much outweigh what can sometimes be seen as a daunting task.

These benefits include a clarified vision across the organization and the ability to plan and budget effectively in alignment with this vision – accounting for anticipated challenges and risks. Additionally, private equity portfolio data analysis allows for smarter and more educated buying decisions by leveraging real-time data and market insights. The broad usability of data and analytics tools drives adoption and encourages change across the organization which translates to increased success for firms. Best of all, a clear and well-executed data strategy allows everyone to focus on a single source of truth with the transparency that effective data integration offers.

Each private equity firm will require a unique strategy that is catered to its needs and the needs of its portfolio of companies. Regardless of a specific firm’s needs, there are individual tools and tools that can combine to perform the necessary functions to improve the processes of any firm in question.

Financial Reporting

In the case of firms conducting a roll-up, the financial reporting process that comes with the consolidation can be a bear. With many firms still relying on manual reporting processes, slow and inconsistent reporting can translate to slow and inconsistent decision-making. Firms in this position need the ability to execute quick and easy portfolio data analysis to understand their financial performance, and many have realized that without harnessing tools to ease this process, their current approach is neither practical nor scalable as they continue to seek out additional acquisitions.

With clearly defined goals and the knowledge of how to leverage applicable PE data platforms, firms can improve their processes and optimize them in a scalable way. There are four steps for a firm in this position to streamline its financial reporting during the roll-up process.

The first is some level of restructuring of the data into a format that supports accurate reporting of pre- and post-acquisition date ranges. From there, a model is implemented to effectively manipulate data among necessary databases. Next comes data consolidation: data mining and machine learning in private equity assist in financial consolidation and reporting by connecting multiple functions, accelerating the speed and accuracy with which data can be processed.

Finally, through custom dashboard creation, firms can leverage more effective data visualization in private equity to provide an in-depth and interactive view for any members of the organization – in this case, financial advisors. With the front-end work in place, ongoing management and development are made much easier with streamlined processes for adding additional acquisitions to the data management platform.

Portfolio Data Analysis and Consolidation

Similarly, PE roll-ups naturally lead to an influx of data from each target company. Firms need a way to effectively and efficiently consolidate data, standardize KPIs across the organization, and analyze data in a user-friendly way. This provides an opportunity to take advantage of private equity business intelligence to improve operations, financial performance, and cash-flow predictability.

Clear strategy and design aligned with the firm and catering of the solution to their long-term growth are essential in any successful digital transformation. The next step involves the centralization of data from multiple source systems through the implementation of custom data pipelines to a centralized data warehouse. Once there, it’s time to leverage tools to organize, standardize, and structure the data to ensure consistency and preparedness for analytics.

At this point, it’s up to firms to create interactive, user-friendly dashboards to easily visualize KPIs and track performance across individual companies within their portfolio and organizations as a whole. By leveraging AI in private equity, firms can create smart reports that fit the needs of any queries they may be interested in improving or learning more about. When PE firms become more effective at analyzing specific data, they position themselves to make more well-educated and efficient decisions as they continue to build their portfolio.

Predictive Analytics

In certain cases, data analytics for private equity can be leveraged to improve portfolio companies. By using predictive analytics in private equity, firms can forecast future trends and performance to make more accurate predictions about opportunities and risks.

In seasons of fast-paced growth, the ability to automatically aggregate and evaluate real-time incoming data, leveraging AI and machine learning, can allow for smarter and faster decision-making that translates to increased growth. Some firms and target companies that are still utilizing manual processes can exponentially increase their bandwidth by leveraging these tools. By combining inputs into a centralized data hub, many processes can be automated and run simultaneously to optimize efficiency and scalability. By connecting these different tools and processes, data is more accurate and more quickly available. This allows for significantly increased output, translating to smarter and faster decision-making that makes scaling effortless when compared to the processes prior.

What This Means for Private Equity Firms

Now more than ever, it’s crucial for PE firms to understand the opportunities presented by developing an optimized data strategy. In an increasingly competitive environment, a data strategy could be the difference between continued growth or failure as other firms adopt these practices.

Leveraging data science in private equity can be daunting and confusing, especially if you are trying to tackle it yourself. At 2nd Watch, we have a team who is ready to help you understand how your firm can benefit from these tools and help you implement them to continue to accelerate your growth trajectory. Many of these examples were pulled directly from our work with other clients, so whether you find yourself facing similar challenges or something unique to your specific situation, we are confident we can help find and create a solution that’s right for you. To begin building a solution aligned with your firm’s vision and continued growth, contact us today for a Private Equity Data Strategy Whiteboarding Session.