Private Equity funds will need to strengthen relationships with three key stakeholder groups to realize and sustain their full potential: portfolio companies, limited partners, and their own workforces.
Challenges to Private Equity Model
Private equity continues to grow, but not all funds are positioned to seize opportunities. The upside potential has created fierce competition and funds need to develop new approaches to differentiate in the rapidly changing environment.
According to Deloitte,
“PE firms that excel at building and deepening relationships with three key stakeholder groups — their own workforces, portfolio companies, and limited partners — will likely be best positioned to cultivate and maintain growth in the long term.”The growing private equity market, Deloitte
Traditional fund management will not keep pace with the needs of these stakeholders. The move to digital is essential to align stakeholders on sustainable value creation.
1. Portfolio Companies
Start-ups continue to face high failure rates, while scale-ups struggle to overcome networking and funding roadblocks. Investors and portfolio companies need to clearly communicate needs and objectives to better prepare for the road ahead. Strengthening two-way communication creates a shared vision and focus on improving investability.
The relationship between private equity funds and portfolio companies is not purely transactional. Funds need to listen and offer resources to help their investments excel. This high-quality exchange of information enables sustainable growth:
“When companies and their PE coaches listen, hold each other accountable and move forward with a foundation of trust, shared goals and collaboration, only then can they discover that they’re capable of far more than they imagined.”Mooney, Forbes
Digitalization unlocks this opportunity by saving time, reducing friction, and keeping parties aligned on long-term goals. Adherence to established principles, reaffirmed through regular reporting and shareholder meetings, creates clarity on the path to exit.
2. Limited Partners
Limited partners want better reporting, demonstrated ESG, co-investment rights, and greater returns. Funds will need to evolve in order to deliver on these growing demands.
2020 proved the utility of digital adoption. 66% of firms that embraced digitalization before the pandemic “noted little disruption to all investor relationships” and many reported improved relationships with limited partners. Funds will need to continue this trend:
“This again presents an opportunity for these firms to challenge traditional methods of their business to continue to compete for capital in this environment; firms cannot afford to lose a step here since fundraising across the industry has carried its strong growth trajectory through the pandemic.”
Intertrust’s Private Equity Report emphasizes the increasing value in quality portfolio company data for “identifying risks and exposures.” Limited partners want increased access to this information and will downgrade funds that lack transparency.
The move to digital will also help funds meet the increasing demand for co-investments. While funds anticipate offering co-investment rights to LPs, they will need resources to handle the increased complexity. Limited partners have more options than ever — the pressure is on funds to demonstrate their commitment and abilityto deliver.
3. Internal Workforce
Straining the current workforce to meet high demand runs the risk of burnout. Instead, PE firms need new tools that empower their workers. Bain & Company’s Private Equity 2021 Global Private Equity Report emphasizes the need for a new approach:
“PE firms need to accelerate their plodding transition from analog to digital. Private equity remains a highly labor-intensive, paper-driven industry….Not every meeting with investors or portfolio company management has to involve a flight, a hotel room and two days’ turnaround time.”
Digital takes some pressure off fund managers and their workforce, enabling them to focus on managing risk in due diligence and add value to portfolio investments.
The benefits from remote meetings, digital reporting, and streamlined access to high-quality information compound as funds attract new investments. When a private equity fund spends less time on admin and more time on investments, they position themselves to capture growth opportunities.
Digital Private Equity Fund Management
Private equity relationships don’t exist in a vacuum. Building each individual relationship contributes to the strength of the whole, resulting in an ongoing cycle of value creation.
Digital tools that remove roadblocks and create new capabilities across the private equity value chain will put funds in a position to capitalize on the growing market.
IntegrityForce helps you develop stronger connections with key stakeholders with an easy-to-use platform for fund management and portfolio company governance. Minimize risks and maximize returns through a range of digital features.
- Dashboard, Newsletters and IR Releases streamline reporting for portfolio companies and LPs.
- Virtual Data Rooms enhance due diligence procedures.
- Document Library enables secure data sharing and self-service.
- Digital Events make it easy to hold and attend virtual meetings.