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The powerful benefits of data transformation

June 2024

3 June 2024 - Having a sophisticated data transformation strategy in place can help GPs execute timely data-driven decisions to better support the generation of alpha and to enhance the client / investor experience, leading to the continuous success and sustainable growth of their organization., says Jared Hoffman, Head of the Transformation Office - Private Markets, Citco Fund Services (USA) Inc.

When it comes to data transformation at GPs, what are the operational benefits of capturing data for clients and investors?

Data management continues to be a major topic of focus across private markets - and for good reason. Effective data transformation strategies offer several operational benefits for GPs, including improving a firm’s scalability, risk mitigation and overall investor experience. All are key drivers to increasing profitability.

Transparency of information should be a focus of any firm’s data transformation efforts, allowing for accurate and timely data sets to be sent out to clients / investors. This goal can be achieved through standardisation and serves a dual purpose in helping firms to comply with escalating regulatory requirements, while managing increasing demands from clients / investors - through organisations such as the Institutional Limited Partners Association (‘ILPA’) - for greater consistency in how GPs’ approach reporting.

At the same time, managers are having to address growing investor demand for greater customisation. Active data management gives GPs the ability to create data sets to facilitate bespoke data requests in a controlled and efficient environment and significantly enhance the client / investor experience.

Another operational benefit of investing in data transformation is the ability to become more dynamic in the marketplace, providing clients / investors reporting on the fly, more timely query management, and improved forecasting through data analytics.

Data transformation ultimately allows for straight-through processing, removing the manual efforts around overall data orchestration, which in turn enhances overall automation for GPs. Many complicated calculations are required to operate effectively in the private markets, for example waterfall calculations (see ‘Citco Waterfall’). As such, data management processes that are properly structured allow managers to automate more of their functions, enhancing their accuracy and efficiency.

The private markets are on a journey towards greater self-service reporting and query management for both GPs and clients / investors, giving them better access to real-time data and allowing for faster and better-informed decisions to be made across the spectrum.

How can GPs leverage data for investors?

Everything comes back to the client / investor experience. Structured data availability allows GPs and their service providers to offer clients / investors the tools they need to actively manage their portfolios. The underpinning technology data analytics, query management and today’s user interfaces (‘UI’) ultimately transforms into a self-service function.

We can of course continue to answer questions and provide reports but moving to a self-service model gives GPs and clients / investors a completely different experience, where they have the flexibility to tap into that data whenever and wherever they want to so that they can conduct their own data analyses. At the end of the day, this kind of service will help secure investors for future vintages and support GPs expansion into new strategies.

What about the risks associated with artificial intelligence and other tools – what can GPs do to enhance data management?

The risks associated with any automated process ultimately come back to the quality of the data collection and data validation throughout the data journey, including: governance security, integration and delivery etc. - and implementing a data strategy that encompasses these key elements - are fundamental when it comes to working with AI and other emerging technologies. This allows you to build a control framework around the technology infrastructure.

We have just launched Citco Document Intelligence, for example, which is the first AI-plus-human platform to offer GPs and clients / investors a fully-managed document service. By combining AI and fund reporting experts, it interprets, organises and transforms documents into discoverable information and insights, helping managers to avoid missing opportunities as a result of the high volumes of emails they receive and the lack of structured data. While AI can help us scale our operations and while it continues to develop, it is important to keep a human-in-the-loop, to mitigate risks and to ensure accuracy expectations are met.

What role can asset servicers play in aiding GPs’ data transformation?

Asset servicers can play various roles to help GPs and clients / investors with their data transformation journeys. One option, and one we provide at Citco, is to offer client transformation programmes that can alleviate the operational burden and optimise client operating models. This essentially involves conducting collaborative sessions into current operating models for clients, looking across the whole organisation or a specific opportunity, examining their data strategy and their technology stack. We can then provide recommendations and work with clients to bring those into functioning models.

For us, it’s very important to give our clients insights into what we have learned across the marketplace. We have various solutions to scale operating models & data within the Citco ecosystem that we continue to upgrade with new workflows and technology initiatives. The industry is moving towards a data exchange model and we, at Citco, are evolving our service offerings to continue to be a predominant industry leader.

What role can data play in developing alpha in the marketplace?

Readily available accurate data provides a real competitive advantage for GPs. GPs differentiate themselves by exceeding expectations in investment returns (alpha generation), and as such easily accessible information that enables data modelling and outcome prediction, positions GPs to make data driven decisions in a quicker environment.

Utilizing data to enhance the overall client / investor experience, so the speed at which GPs can provide data and the level of granularity and customisation they can achieve will have a huge impact on the ability of investors to analyse their portfolios - improving transparency, improving trust, which grows true client / investor partnerships. This in turn, supports GP expansion, allowing greater investment opportunities, and coupled with the above point, leads to greater alpha generation

Finally, a sophisticated data strategy allows GPs to scale their organisations more effectively, creating efficiencies and time savings across their operations and further increasing the success and sustainability of the organization.

First published in Private Equity International’s Fund Admin Special Report

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