November 17, 2017
If cows are connected to the internet to increase productivity, you have to wonder why private equity general partners aren’t.
The Connected Cow is Common, Yet the Connected GP Isn’t
Digital technology can tell farmers if a cow walks too much, eats too little or sleeps correctly. It’s now common to see connected cows and there’s little wonder why: digital technology can improve the returns of traditional farming by a factor of five. Technology offers the promise of similar efficiency for private equity, yet there are more cows (on a relative basis) using digital systems than there are GPs.
GPs Push Innovation in Their Portfolios, Underutilize It in Their Own Firms
The private equity industry is keen to buy companies in the tech sector and eager to employ digital innovation to improve performance at portfolio companies. But PE firms are notoriously slow to adopt new technology for their own operations. While a few cutting-edge general partners are exploring the use of blockchain – the technology behind virtual currencies – to track and quickly share information on transactions, cash flows, contracts and regulatory compliance, they are very much the exception. It’s noteworthy that while GPs regularly install highly talented chief technology officers at their portfolio companies, they rarely have in-house CTOs.
In a Crowded Fundraising Market, Not Adopting a Digital Strategy is a Mistake
While digital commitment processes are steadily making inroads in private equity – Palico’s online marketplace for fundraisings and secondaries lists over $67 billion in investable opportunities – many GPs still rely exclusively on personal contact and face-to-face meetings to secure capital. But the failure to incorporate a digital channel for fundraising is increasingly risky for GPs. Private equity is more complex and diverse and the field of funds increasingly crowded. In the five years since Palico launched, the number of global private equity fundraisings has risen 68 percent, with a record 3,039 funds currently raising capital versus 1,812 back in 2012. By listing fundraisings – or secondaries – on Palico, GPs – and LPs – instantly reach investors from across the globe with a pre-declared interest in a vehicle’s strategy. Moreover, in Palico’s marketplace it’s LPs who discover GPs – an elegant solution for winning commitments in an environment where direct marketing by fund managers is increasingly restricted by new regulatory regimes like the European Union’s Alternative Investment Fund Managers Directive.
Don’t Wait Until the Cows Come Home
Today, Palico has some 400 investable private equity opportunities, focusing on everything from buyouts to credit. On Palico, LPs and GPs from across the globe are evaluating opportunities on a daily basis and closing deals with each other weekly. When disruptive technologies gain a foothold, change accelerates rapidly. Don’t wait until the cows come home to take advantage of digital – the cows haven’t!
«We secured several commitments using Palico and the standout element was the remarkable efficiency of the digital marketplace.»
Brett Hickey, Star Mountain Capital