Private equity in 2022 was a tale of two halves. The first half mirrored 2021 with easy access to commitments, capital, and deals. Conversely, the second half saw a precipitous decline in exits, elongated commitment cycles, and an overall shift in sentiment. This situation continues to impact all private market participants.
Limited partners (LPs) currently face headwinds from the “denominator effect,” imbalanced allocations (relative to target) stemming from public market volatility, and underperformance. Consequently, LPs appear “overcommitted” and/or overexposed to private capital strategies and are thus reluctant to — or prohibited from — making new private equity commitments.
For general partners (GPs), this dynamic has made securing and deploying capital more difficult. Overall buyout deals fell from historical highs in H2 2022, both in value and total deal count — though numerous market leaders remain oversubscribed. The market has increasingly seen capital flow to large, brand name GPs and specialized funds, yet many newer and smaller GPs have struggled to attract capital.
As an example of this trend, Chronograph partner eVestment found that pension funds deployed the most capital to Blackstone and Thoma Bravo in the 2022 / 2023 Private Fund Trends Report. Each firm received more than $6 billion in commitments over the period — more than $1 billion more than the next closest capital recipient.
Markets experienced dramatic pullbacks at the beginning of the COVID-19 pandemic — though many investors quickly resumed before rapidly deploying capital. This pattern mirrored the global financial crisis in 2008 and 2009 with a lull followed by re-acceleration.
With both of these prior macro events, central bank policies across all geographies were highly accommodating, pushing investors into higher return potential (i.e. higher risk) assets — including private equity. In the current context, this pattern is not likely to be repeated, thus now is the time to prepare to be the most attractive capital destination for LPs sitting on significant dry powder. GPs that streamline their operations to ensure they can focus on chasing deals and creating value rather than shepherding manual processes will see an immediate benefit in the form of better and more-actionable data and also position themselves for a stronger fundraising narrative.
With commitments harder to secure and contribution timelines extended, it is imperative that investor relations and deals teams focus time on sourcing and assessing new opportunities and also adding value to existing deals, rather than chasing portfolio company data to showcase performance.
Market leaders have moved to seamlessly configure, collect, and utilize data from their portfolio companies and other constituents with no local installations, rigid templates, or inflexible processes. By cutting down on arduous monitoring processes, investor relations and investment teams who have adopted technology have data at their fingertips and can spend more time with clients and building relationships and less time munging data.
The days of walled gardens are over. Market leaders have adopted clean patterns to integrate existing architecture and data sources upstream and downstream. By seamlessly connecting data processing and analytics technologies, firms can tie together in-house models to enable real-time understanding and predictive analysis. With Chronograph, investor relations teams can automatically refresh reports within existing Microsoft Word and Excel deliverables with the click of a button while maintaining version histories and an audit trail of all information disclosures to ensure there is never ambiguity in constituent communications.
Chronograph helps streamline and automate monthly and quarterly valuations to ensure consistency and timely delivery with valuation tools that ensure compliance with global audit standards. Underlying models are streamed alongside the data to ensure easy access for auditors or other constituents. From a single source of truth for all input data to a definitive record of backup information for third parties, Chronograph allows you to focus on the assumptions, not the process.
With private equity commitments increasingly global, ESG is on the minds of all investors — whether by choice or regulation. LPs have begun to demand better, more granular ESG data from GPs and their portfolio companies. Without a clear ESG data collection strategy and technology, GPs may get left behind.
This data should be structured and consistent and flow into commonly accepted formats and frameworks. Without the right system, reporting and deal teams face significant opportunity costs to retrofit or manually populate this data. Modern portfolio management technology empowers GPs to seamlessly and automatically collect ESG data from their portfolio companies and output ESG impact reports, which satisfy LP demands and EU regulatory requirements.
Modern limited partners assess and analyze portfolios and funds differently. They want more accurate and granular data. GPs who can put returns in context with real-time portfolio analytics, dashboards, interactive charts, and more are poised to thrive. Assess how you interact and engage with fund and portfolio company analytics. Benefit from robust analytics developed exclusively for private capital investors of scale and prove your investment thesis to LPs.
Many fund managers have moved their data to the cloud. With increasingly granular data requests, fund managers and asset owners must be prepared. Does your technology stack provide value or headaches? Chronograph’s Snowflake Connectivity-as-a-Service offering, Snowbank, significantly simplifies data ELT at scale, making it easy to port all client data into a long-term persistence medium, ensuring security, speed of access, and data ownership.
Amidst periods of volatility, GPs and fund managers have opportunities to streamline their operations to set themselves up for incremental and exponential benefits. Dramatic acceleration and dealmaking have typically followed periods of uncertainty and volatility. There is no better time to accelerate this transformation to ensure you are ready to secure capital.
With Chronograph, GPs can more effectively and efficiently respond to LP and other data requests at speed to prove their value and streamline their data operations. Meanwhile, LPs can access all underlying fund and portfolio company data, cash flows, capital account balances, partnership financials, fund terms, valuation metrics, leverage measures, and every other data point about your portfolio.
Ready for a new way to manage your portfolio and streamline data operations? Get in touch (opens in new window).
Get updates in your inbox
Learn how Chronograph can streamline your private capital investment monitoring and diligence