/Insights/Private equity automation: Streamlining PE data collection, due diligence, and deal sourcing

Privateequityautomation:StreamliningPEdatacollection,duediligence,anddealsourcing

Dec 17, 2023

6 min. read

People working at a private equity office

Discover how private equity automation leverages AI and machine learning to streamline data collection, due diligence, and deal sourcing for PE firms. Improve operational efficiency and make informed investment decisions with intelligent automation.

For private equity (PE) investors, technology solutions that help streamline and automate the PE investment process have long been at the top of their wish lists. But even with the wealth of technology available today, private equity automation hasn't taken hold like in other parts of the financial world.

Many private equity professionals still rely on a manual process. Even at a top private equity firm, you might not find much in the way of automation tools. This is due in part to a lack of uniform standards for PE data. Reporting regulations change frequently, leaving some investment professionals worried about adopting an automation solution that won't be durable in the long run. In fact, capturing the risk and data exposure inherent in private equity was cited by 40% of investment professionals as their top concern when evaluating an automation solution.

The rise of artificial intelligence—and generative AI in particular—has changed the game. For perhaps the first time, the discerning PE investor can now harness a modern tech stack and reap the benefits of process automation. An automated process that collects data on investment opportunities, guides private equity professionals through the due diligence process, and meets reporting requirements is now a reality.

If you're looking into a PE automation solution, here's a guide on what you need to know and what to keep in mind.

Use cases for PE automation

Although digital transformation is a top priority for businesses of all sizes and types, PE firms are only now joining the trend. On one level, that's understandable. A private equity firm or portfolio company doesn't live in the same space as, say, the supply chain. On some levels, industrial automation is easier to envision than adoption process automation around investment opportunities, informed decisions, the diligence process, and the other components of private equity investment.

After all, hedge funds, market trends, and vast amounts of investment-specific data are just not the same as manufacturing and shipping a product. How do you automate investor relations, for example?

Fortunately, machine learning and generative AI systems have made intelligent automation a reality. Plenty of realistic, real-world use cases for PE automation are available with the right tech stack. These solutions aid in PE data collection, due diligence, and even deal sourcing, starting with the front-office tasks that have traditionally required a lot of manual work.

With the right solution, private equity teams can automate the process of tracking investment exposure, including multi-asset class portfolios. With these automation solutions, a portfolio company can make informed decisions faster—and with greater accuracy, thanks to the amount of data analyzed by the generative AI algorithms. This leads to more accurate exposure calculations, helping PE investors better evaluate the impact on their portfolios in any given timeframe.

Evaluating investment performance can be a long and tedious manual process for a portfolio company trying to manage profitability with multiple long-term contracts. But with automated data collection, intelligent dashboards make it easy to see project performance and drill down into the details of unprofitable projects.

This same type of automated data collection and analysis can give a PE investor a consolidated view of their portfolio's performance. Real-time insight goes a long way toward more accurate forecasting and budgeting. In addition, automated private equity funds data shines a light on which investments drive portfolio value. Again, this is the type of information that PE firms have traditionally acquired through long-term, manual analysis because each investment is so different.

Perhaps the best part of these automated solutions is that they are adaptable to a wide range of PE needs. From the largest firms to the individual private equity investor, intelligent automation backed with real-time analytics can all have tailored automation solutions. This reduces the need for a larger workforce, including dedicated data analysts.

Generative AI-powered automation solutions make sharing data across risk and performance teams easier, ensuring they stay in sync. Manual processes typically lead to long and drawn-out reconciliation processes, which increases the potential for errors—and, thus, investment risk. Automated financial statements speed the process along with greater accuracy and reduced risk.

The challenges of PE automation

Private equity process automation has come a long way, almost hand-in-hand with the rise of AI in the workplace. With the technology now available and in use, it will soon become a requirement to stay ahead of the competition. But even with all the benefits and all the good reasons to adopt PE automation, there are still some challenges to face.

Such a dramatic shift in processes and workflows is never going to be easy. The long-term reliance on manual processes means some investment professionals will find the adoption of a new approach to their work difficult. The unique challenges of digital transformation in the PE space can be particularly tough also. All of the manual processes and segmented data collection practices lead to information in multiple systems.

Data governance is another unique challenge in the world of private equity. The differing regulations across companies in multiple industries can fill a portfolio with competing data governance frameworks. Translating all these requirements into a workable automated solution requires special care in the implementation phase.

Cybersecurity is also a special consideration for PE firms. Security is an important area for business in any industry, but a well-managed and profitable portfolio could be a prime target for hackers and ransomware practitioners. Those portfolios' highly sensitive financial information requires exceptionally secure process automation.

Private equity intelligence automation: The future is now

Despite the challenges, almost everyone in the world of PE can see that its time has arrived. From the managing director of a large firm to individual fund managers, it's easy to see the value creation happening in real time. Investment decisions are now informed by AI, with PE investors and asset managers finding new investment opportunities thanks to process automation.

Multiple websites report this every day, but perhaps the most telling sign of the emerging revolution in private equity is in a story from Yahoo! Finance. They report that 99% of mid-sized private equity firms agree that AI will be an essential tool for their operations soon.

You need the right digital transformation partner to create a tailored and full-featured PE automation solution. Codal is a full-stack enterprise design and development consultancy that specializes in PE firms' digital transformation.

Industry

Financial services

Topic

Strategy

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