Published on December 12, 2014 by Abhijit Sahay
Alternative Asset Management firms, whether they are Private Equity Funds, Fund of Funds, or Endowment Funds with a portfolio of alternative investments, have to deal with private confidential data while looking at investment propositions. In order to provide the value edge to their existing institutional clients and solicit new ones, these firms are continuously engaged in differentiating their investment strategy and processes so as to provide tangible evidence of the secret differentiating factor that positions them to outperform their peers.
Over time, these firms have realised the importance of the historical data that they might be sitting on by virtue of their vast investment pipeline and origination efforts. CRM applications built on proven cloud-based platforms such as Salesforce have opened up new possibilities in providing distinct advantages to these firms. However, there are many challenges when it comes to populating such applications with historical data in order to make it functional, making it a pain area. Based on our experience, asset management firms should pay attention to “seven key factors” while constituting a data management team.
Complexity and Size of Data
Data does not always reside in fund marketing documents such as Private Placement Memorandums, Addendums, Quarterly and Annual Reports. Important and most importantly additional data is sometimes available in email correspondence, or proprietary models in Excel spreadsheets. The team responsible for data population has to realise that it is on a hunting expedition and should not only be aware of where data is most likely to be found, but what are the most unlikely places where important data might be hidden.
Data is not easy to manage
Quite often, and more so in case of fund of funds, data can change for the prior period and is often restated, for e.g. the net profit of a portfolio company. The database team should know the implications of such changes and record it in the most appropriate manner.
Database team knows the specifics of the Alternative Investments Industry
The data management team should know the Alternative Investments Industry well, and should be well- versed with the nature of documents and models that are used in the Industry. They should know the meaning of GP Commitment, Minimum Commitment, Key Man Risk, and should be able to tell the difference between Carried Interest and Management Fee.
Users with knowledge of functioning of cloud based database platforms
Cloud-based platforms come with user-based rights that can be effectively deployed to restrict user permissions in a manner that prevents mishaps. However, prior knowledge of creating Accounts, Portfolio Companies, and following the basics for avoiding duplication ensures that the process is run without any major challenges and training needs are only limited to the extent the application has been customised to address the specific functionalities of the firm implementing it.
Is the team adept in creating data backups?
Uploading data in systems/platforms such as Salesforce is not very time consuming. There can be instances where bulk data can be updated using CSV files with matching fields as in the Investment Management/CRM application. What is time consuming is the process of data discovery, data cleaning (remember restatements), and putting them in a comprehensive format where all data can be traced back to their origin. A proper record can go a long way when dealing with any contingency.
Separating Mission Critical data
Even if the firms have a highly qualified database team at their disposal, it is advisable to either separate mission critical data such as data pertaining to the current/active portfolio of the firm or implement a fool-proof quality check mechanism for such data. How well the team knows the Alternative Investment Industry, different types of key data, and how adept they are in creating data backups can be critical in determining whether you would like to separate mission critical data or implement a high quality-check mechanism for such data.
Managing Costs, Scalability and Attrition
Asset Management firms should not only look for lower costs that specialised outsourcing firms might have to offer but also if they provide the advantage of onboarding key resources who would be wedded to the project through its life cycle. Providing a team that ensures institutionalisation of knowledge and an ongoing continuity of data management and uploads is also important. They should not worry about the high attrition that is typically observed in onshore data management teams. They should weigh the scalability that is being offered as the core team might itself be downsized once the historical updates are completed and the team is entrusted with the task of updating data on an ongoing basis.
Alternative Asset Management Firms realise that the technological landscape is evolving very fast, and they need to move ahead with implementing such applications in order to differentiate themselves. The key to this is the appreciation and acknowledgment that clean data that runs back several years, lies at the heart of it, and that is what creates the magic potion, the secret sauce that enables Alternative Asset Management firms to outperform their peers. How you select your database team is the most important decision you can make for an ordinary application to do something extraordinary for you.
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About the Author
Abhijit manages the pre-sales function at Acuity Knowledge Partners and is the acting bridge for the sales engagement team in Asset Management (Alternatives), Investment Banking, Business Research, and Analytics. He has over nine years of experience; previously, he managed the Alternative Asset Management accounts of Acuity Knowledge Partners for a suite of service offerings across Investment Due Diligence, Business Development, Portfolio Monitoring, and Client Reporting. As part of the operations team at Acuity Knowledge Partners, he worked with some of the top global Private Equity Fund of Funds and Fund of Hedge Funds. Prior to working with Acuity Knowledge Partners, he worked as a Senior Analyst with D.E. Shaw India, where he conducted due diligence for D.E. Shaw’s successful investments in DLF, and Amar Ujala (a leading national daily). He holds a degree in Economics from the University of Delhi, and an M.B.A from I.C.F.A.I Business School, Hyderabad
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