Digitization Blurs the LP-GP Divide
July 13th, 2017
Gone are the days when investors passively entrusted money to fund managers and patiently waited for cash calls and distributions. The private equity industry has matured and today there is a new breed of investor: more demanding and sophisticated and willing to take an ever-increasing role in deal sourcing and operational management. This new LP proactiveness, and its disruptive effect on the once clear line between investors and managers, owes much to the ongoing digitalization of private equity.
|Digital Means More GP Accountability|
As in other industries, in private equity most communication is now done online. While face-to-face meetings remain essential for building trust between investors and managers, dematerialized datarooms and online reporting systems are streamlining due diligence processes, saving LPs and GPs enormous time. GPs use social networks and online fund marketplaces like Palico to efficiently build brand throughout the life of their vehicles – not just during fundraisings. The flipside of greater contact and accessibility is LPs hold managers accountable for more than they once did. Digital renders the cost of incorporating new reporting metrics marginal. Taking advantage of this, LPs are pushing for more transparency on valuations and fees. Digital systems are increasingly deployed to keep tabs on GP adoption of socially responsible investment and governance standards. Overall, LPs take a more hands-on approach in the operational processes of their GPs and in the monitoring of portfolio companies as a result of digital.
|Digital Systems Have Given LPs New Abilities to Invest|
Technology has emboldened LPs to venture beyond traditional fund investing. While attracting the right individual talents to an LP organization remains structurally challenging, digital tools greatly contribute to building in-house investment capabilities. Transactional analytics now use algorithms to make sense of diverse data sets and determine key issues. This substantially reduces time spent on due diligence and means LPs are increasingly agile and decisive. Using technology to streamline investment analysis, today’s LPs more easily vie for co-investment opportunities, which require fast decision-making processes. Further reducing the divide between LP and GP, investors are scooping up direct investments, competing toe-to-toe with fund managers. Investors are helped in this new undertaking by burgeoning online platforms where they can screen direct investment opportunities across geographies and sectors.
|Digitization Puts to Rest the Myth of PE as a Slowly Evolving Industry|
Interestingly, these changes in behavior are not only occurring at big institutional investors whose large pools of money put them in a natural position of power. Smaller investors, such as family offices, are using their industry or regional knowledge to weigh in on operational value creation at portfolio companies. The image of private equity as a slowly evolving industry is being put to rest by the smart adoption of digital tools by investors and managers.
|Palico Makes PE Accessible and Affordable|
Palico is a disruptor in the classic sense: It’s altering fundraising and secondary sales with a digital approach that makes products more accessible and affordable. It’s opening commitment processes to big and small – whether investor, manager, gatekeeper, placement agent or secondary advisor.