What’s driving change for Private Equity reporting?

In today’s marketplace Private Equity reporting is subject to change as never before. Investors demand granular data at their fingertips. New GDPR requirements demand enhanced controls and transparency. To respond and succeed, fund managers need to achieve ever greater fund operation and investor reporting efficiency within a clearly defined technology strategy.

GDPR

The intention of GDPR, which came into place in May 2018, is to protect the rights of natural persons (EU citizens) in respect of their data. Whilst many funds may have very few individual investors, as opposed to corporations to whom GDPR does not apply, it’s important for all fund managers to identify the data that they are holding and processing and to consider the controls in respect of keeping this data highly secure. GDPR protects the data rights of individuals irrespective of whether they are ultra-high net worth or have opted in as a professional client. A manager should not just think about their current client base but think about all individuals who may be in their CRM database and how they can allow these individuals to opt in to marketing going forward as per the new requirements. With the maximum fine for a breach of GDPR being equivalent to 4% of global revenue for an organisation, it’s also vital to have robust processes in place to prevent future data breaches.

Transparency

Transparency is a word which gets used a lot in this era of post-truth politics and social media. But what does it mean in relation to the General Data Protection Regulation? Article 5 of the regulation sets out several principles but, in essence, all data must be processed “lawfully, fairly and in a transparent manner in relation to the data subject.” Transparency was already a requirement in the existing EU Data Protection Directive, but the arrival of the GDPR has strengthened this requirement considerably. Investors are now entitled to request certain information from their fund manager under Article 13 of the GDPR. When it comes to reporting, today’s investors expect private equity firms to deliver the same level of granularity and transparency they would receive from the public markets and are demanding more data and information on funds’ individual portfolio holdings.

Automation

Even with all the technology available, many private equity firms still maintain vital data using manual processes. Specifically, they input information by hand in spreadsheets, documents and other forms of media. These physical processes often create resource and time-related challenges for PE managers in areas such as accounting, marketing, investor relations and compliance. The manual approach can also result in inaccurate, inconsistent reporting. Faced with these prospective issues, many PE firms are adopting technology solutions to increase efficiency and accuracy, and to allow for quick, easy retrieval of data from a diverse range of stakeholders. Such strategies allow firms to raise new funds or launch new products without the growing pains experienced by peers that still rely on manual data management practices and processes. For these reasons, the trend toward data automation in the PE industry is expected to grow, especially as the industry becomes more comfortable with relying on technological solutions to mitigate investment, operational, legal, regulatory and compliance risk. Investment in information systems, specifically the automation and streamlining of data processes, is no longer a “nice to have” but is becoming a prerequisite.

Control

Sensitive and confidential data must be safeguarded, and this can be done by regulating or restricting access to it. Access controls should be proportionate to the kind of data and level of confidentiality involved. When regulating access, it’s important to consider who would be able to access data, what they are able to do with it, whether any specific use restrictions are required and for how long you want the data to be available. Tracking how this data is changed over time is vital for diagnosing errors, correcting them and then improving procedures for the future. An audit log, or trail, is a chronological record of security-relevant data that documents the sequence of activities affecting an operation, procedure, event, file or document. Knowing who accessed various files, or downloaded information, can be invaluable when raising funds, sharing financial information with auditors, storing legal or confidential employee information, protecting corporate intellectual property, or conducting other professional activities in a highly secure and organised manner.

Mainspring Reporting Services

Mainspring Reporting Services for fund manager operations and investor services delivers reporting transparency and self-service access to high quality data, documents, reports and dashboards throughout the lifecycle of the fund. Our objectives are to improve our clients’ operational efficiency whilst adding value to their investor relations service, through ongoing innovation.

The Mainspring Reporting Services suite, underpinned by industry leading accounting and administration software, provides a technology platform for managing the entire private equity life cycle. Investran is the system of record for funds, investments and investors and offers extensive capability for accounting, automating complex processes, managing relationships, monitoring investments and reporting. By using such a robust system, Mainspring Fund Services operates in a highly controlled environment.

The main interaction for investors is to use a managed investor portal, which Mainspring hosts, but our clients retain control over content and branding. This helps reduce inbound email activity and duplicated requests, whilst also providing investors a reference resource and access to additional insight into their data. By offering multi-factor authentication we can increase our clients’ security level for those investors that demand it. The portal is also a platform for investor marketing, providing insight into the investment team, videos, product literature, company announcements, interim reports and social feeds.

In today’s highly competitive private equity market, firms must not only deliver superior returns, but also respond to more stringent reporting requirements and increasing demands for information both from within and outside their organisation. Treating both data and reporting as an integral part of the overall technology strategy will address the demands of today and assist growth and performance tomorrow. Mainspring Reporting Services enables our clients to stand out with fund communication, reporting and performance analysis that delivers superior fund stewardship.

Author: Matthew Ghaffari, Lead Consultant, Mainspring Fund Services