Those firms that demonstrate a robust and well-coordinated operating infrastructure will be more likely to attract funds in a challenging fund-raising environment.
Making investments in the back office
A professionalized back office was one of three key areas we identified in our report last year that would define the winners of tomorrow. And indeed, today we find the industry at a critical point of maturity as many firms are making significant decisions about their long-term operating infrastructure.
As the firms evolve, there is a growing need for IT infrastructure to capture information requested by investors, regulators, auditors and other key stakeholders. FATCA, Form PF, the AIFM Directive and ILPA are just some of the drivers leading to this growing need. PE firms are improving their processes and systems as part of a cohesive and coordinated framework to provide internal and client-facing advantages.
To create competitive advantages in deal-making, portfolio analysis and investor reporting, firms are looking to introduce strategic changes to how data and information are gathered and managed.
Those firms that demonstrate a robust and well-coordinated operating infrastructure will be more likely to attract funds in a challenging fund-raising environment. It's important to note these investments are significant. With few standardized software packages in the market that can integrate the data required for accounting, CRM, portfolio management, investor reporting and other key functions, the industry's existing systems and tools for these functions have developed separately.
PE harnessing talent and driving through change
Initiatives such as the faithful, routine and constant use of 100-day plans — living, ongoing 100-day plans — to implement key improvements and the strengthening of firms' capabilities through hiring operating partners with top-quality sector credentials have become an integral part of PE's value-add story over the last few years.
In many cases, these operating partners are corporate executives who are also helping to source and diligence new deals, in addition to providing operational support or acting as chairman of the board. We have seen this trend continue to expand resources focused on driving additional value in the portfolio — bringing both functional and strategic expertise to enhance performance.
Identifying the right sectors
Another way in which PE is demonstrating its impressive agility and adaptability in the face of these challenges is by increasing focus and expertise in the sectors it views as offering the greatest potential. Rather than taking a general approach to investing, many PE firms are focused on sectors and that display highly attractive fundamentals and spend significant time and effort searching for and understanding niches within them that play to PE's focus on growth and driving through business change. Some key sectors in which PE sees opportunity include oil and gas, health care and technology.
Larger firms are expanding around the concept of specific pools of capital for sector opportunities, while others are honing their investment focus to concentrate on industries set on a growth path. This approach not only answers LPs' desire for more direct exposure to specific sectors, but also assists firms in their bid to create competitive advantages in deal origination and value creation strategies to capture growth.
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