The private capital industry has experienced huge growth over the past decade, with unprecedented investor capital flowing into private equity and debt, real estate, infrastructure and other alternative investment strategies. Success has brought new challenges, such as how to keep up with the volume, variety, and velocity of investment and portfolio data, and how to derive competitive insights and advantages from such information. Coupled with an influx of data, investors, and regulators are also demanding greater transparency. It is therefore no surprise that CFOs, CTOs, and COOs have their hands full in building a scalable operating model to support their fund-raising and investment activities. In a 2017 WBR InvestOps survey, 62% of the 100 North American buy-side firms questioned named alternatives and private debt as the most challenging and costly asset classes to support, and some 75% named consolidating systems and reducing interfaces as the key strategic priority for 2018.
Digital disruption: The time to innovate
Private capital has, in the past, been quite slow to adapt to changes and introduce or embrace new technologies. At first that might seem surprising, since many private investment firms are small (in terms of people) and are generally receptive to new ideas, so they seem like prime candidates for embracing new technology. The issue is with the software solutions that have historically served the financial services industry; they tend to focus on one or two core functions, and therefore are weak—or provide no solution at all—in other important areas. Not only that, but most are especially weak when it comes to forward-looking planning, modelling, and analytics. Consequently, a significant investment in a technology solution can still fall short of expectations, and it fails to connect every part of the business. Additionally, the belief that one software solution can support all functions within a private capital business is flawed and unrealistic. A combination of technology solutions is required to really transform business operations at alternative investment firms.
Another key factor is integration between disparate solutions. Cloud technology is reducing the need for complex infrastructure and internally supported IT environments, enabling more efficient and effective reporting and analysis that is accessible and customizable by individuals within the business. Transparency is a significant factor on the minds of CFOs today as investors and regulators are demanding more granularity around fees and expenses, carry calculations and drivers of performance. Finally, mobility is prevalent in the minds of private capital firms, and full access to pertinent decision-making information while on the road is important for front office teams.
The good news is that private capital firms are now empowered by their executive teams and investors to change. Technology and digital innovation enables investment managers the power to connect data, workflow, and analytics like never before. Firms are starting to adapt and evolve their investment and operational infrastructure to gain and retain their competitive advantage.
Anaplan: Transforming Alternative Investments
Anaplan combines an unrivalled planning and modelling engine, predictive analytics, and cloud collaboration into one simple interface for business users. Across all lines of the private capital business, including finance, investor relations, portfolio management, operations, portfolio monitoring, executive committee planning, and HR. Anaplan connects financial, operating, and performance data with business strategy and processes.
Anaplan provides many of the same benefits of a traditional data warehouse, with the added benefit of being understandable to business users. It can serve as a tool for receiving information from multiple sources, internal and external (such as administrators and operating partners), to allow funds to model and evaluate cash flow data at the investment and investor level. Being cloud-based, Anaplan also fulfils private capital firms’ mobility requirements.
Finally, it’s extremely flexible. Once a firm solves a specific pain point using Anaplan, multiple other areas within the firm often find they can benefit from its use. Some of those include budgeting and cash flow forecasting, sale realization modelling, carry modelling, and compensation planning and approval.
Opportunities: Use Cases for Private Equity
For private equity firms, there are many potential use cases across their front, middle, and back office operations as well as at the portfolio company level.
Opportunities: Use Cases for Real Estate
For real estate assets and investment managers, there are also many potential use cases across their front and back office operations as well as at the underlying property asset level:
The power of Connected Planning
The above use cases highlight some of the capabilities of Anaplan to solve for many of the situations where the private capital industry has previously reverted to disparate Excel spreadsheets to provide the flexibility and control that firm professionals require.
Due to the truly connected planning nature of Anaplan it naturally grows within the organization, such that once a firm has used Anaplan to solve one particular issue (e.g. human capital planning), they then go in search of other processes and models to improve, connect, and automate (e.g. carry models, distribution waterfall calculations, financial entity consolidations) as well as new data streams to connect (e.g. accounting system data, benchmark data etc.). Several common scenarios faced by the private capital industry have been built into Anaplan Accelerator Apps which can be found on the Anaplan App Hub. These Apps provide accelerator models for Anaplan clients, enabling them to leverage a pre-built model and customise the requirements to their own processes, workflows, reporting requirements, and data integration needs.
The most advanced users are those that then connect their different models within Anaplan. This enables firms to connect a full investment to investor value chain e.g. an LBO model to value a deal, connect a portfolio company monitoring model to track and value their investment, connect a carry / waterfall model to aggregate the returns up through their fund structure and finally connect returns back to their employee incentive compensation scheme models.
In summary, one of the most powerful aspects of leveraging Anaplan within a private capital operating model is the ability to streamline, evolve, adapt, and automate many of the historically disparate models used to operate a private capital business. As goals change, markets shift, and strategies adjust –so does your Anaplan solution. It’s a living platform that adapts to your requirements and transforms the way you do business.
About the authors
Nick Moore is co-founder and executive director of Lionpoint Group.
Jonathan Balkin is co-founder and executive director of Lionpoint Group.
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