Realizing a Competitive Advantage from Portfolio Company Data

Private markets have seen exceptional growth in the past decade, with large capital inflows and returns that outpaced public markets. As private equity firms have delivered highly attractive returns to their limited partners (LPs), they have been able to raise larger funds and grow their franchises into even more sophisticated investment engines.

However, amid the higher interest rate environment, LPs have become more cautious with their allocations to the private markets and are increasingly asking investors to substantiate their track record in detail and fully articulate value creation strategies. In this tighter fundraising landscape, technology-driven portfolio monitoring solutions can help private equity firms use their portfolio company data as a competitive advantage.

Now more than ever, investors need access to high-quality operational data. Whether their value creation plans focus on new growth, operational improvements, M&A opportunities, ESG initiatives, or (likely) a blend of strategies, firms must identify, track, and demonstrate regular, tangible progress through detailed KPIs that are harmonized across their portfolio.

However, for most private equity firms, aggregating operational data and deriving portfolio-level insights remains time-consuming due to outdated methods or inflexible, template-based approaches (e.g., ‘Excel as a database’). Often, private equity finance professionals find themselves trying to force a square peg into a round hole via manual data entry and/or convoluted technology processes.

Additionally, these legacy approaches limit the ability to meet LP’s evolving data requests or easily accommodate changes in portfolio company reporting. As a result, a firm’s high-value resources are often allocated to spend time on onerous, time-consuming tasks that other industry-leading firms are solving with technology.

Buyout or venture capital funds that invest across different sectors, may contain investments with starkly different value drivers. Relying on an outdated data management architecture likely means a quarterly struggle to efficiently collect and aggregate different metrics, reconcile unique naming approaches, harmonize reporting across the portfolio, and ultimately use data as a strategic asset.

Most firms end up with segregated pools of data across the middle and front office, resulting from different sources and processes. Adopting a flexible and agile data management system can transform private equity investors’ ability to implement, execute, and showcase otherwise impressive track records and sophisticated value creation strategies.

Further, with LPs consistently expecting more granular and regular performance and exposure reporting, the ability to effectively and quickly respond to LP questions and other data requests could be the difference between closing or missing out on a commitment. Having all portfolio data consolidated in one place enables investor relations, investment teams, finance, compliance, and other professionals to access information across functional areas without having to chase down colleagues or interrupt portfolio companies.

Current market conditions have intensified competition for private equity investors to attract LP commitments. To build a robust investment business and succeed in fundraising, the best firms will thoughtfully leverage their portfolio company data as a strategic asset.