In 2018, China began to promote the construction of new infrastructure, and
the new coronavirus epidemic in 2020 accelerated the domestic progress of digital infrastructure. The reduction of offline exchanges is making private equity leaders worry about management issues. It can be said that
digital transformation will save private equity funds in the fire. This article introduces the specific application scenarios of digital transformation in private placement in combination with foreign examples in recent years and develops a digital operation manual.
"A new era of digital infrastructure"-the new environment facing China's private equity industry
Digital infrastructure is the hardware on which modern industrial society depends, and modern industries rely more and more on digital technology in daily operations and R & D, so people are more aware of the importance of digital infrastructure. In fact, as early as the end of 2018, the Central Economic Work Conference clearly defined the strategic positioning of "new infrastructure construction" such as 5G, artificial intelligence, industrial Internet, and Internet of Things. Due to the impact of
the new coronavirus epidemic in early 2020, digital construction in the construction of new infrastructure has become one of the hot spots in China's social development.
Some traditional industries have been hit hard, and emerging industries such as smart manufacturing, unmanned distribution, online consumption, and healthcare have shown strong growth potential. In the future, the country will increase investment in public health services and emergency supplies, and accelerate the construction of new infrastructure such as 5G networks and data centers.
The new coronavirus that broke out in early 2020 affected not only China but also the whole world. Most enterprises have been affected by the virus, and office, production and sales have been clearly affected. The world economy has also fallen into a new round of recession, and the operation of the financial industry has also been deeply affected.
Barclays Plc, BlackRock Inc, Morgan Stanley, Wells Fargo, etc. have successively confirmed that employees are infected with
the new coronavirus pneumonia epidemic. In order to reduce the risk of a large number of employees getting sick, major banks around the world have taken part in decentralizing the workforce, isolating evacuation, testing and planning to use alternate office premises, etc., to ensure that the business can continue.
Under this impact, those organizations that have mastered or partially mastered digital management technology can better cope with it, while those companies that lag behind in digital infrastructure face greater challenges.
It is foreseeable that it is only a matter of time before all industries enter the digital mode. The private equity industry has close ties with many industries. If you want to keep your office and services efficient, it is especially important to catch up with the digital wave.
The private equity industry also needs to be digital
In the private equity industry, a certain scale effect can provide GP with a considerable competitive advantage, but if the scale of private equity funds is too large, the complexity of management will bring more burdens and costs. Private equity funds urgently need to expand the scale of digital infrastructure and process more data to deal with the problems caused by complexity.
In addition, there are more and more interaction methods between modern private equity investment management companies (GPs) and customers. According to different interaction methods, GPs need to manage accounts separately, which makes management more difficult. Today, companies often create a variety of new relationships: blind pools, separated accounts, and sidecars (side trailer investment), an investment strategy in which one investor allows another investor to control funds Investment objectives and methods), joint investment (joint investment) and institutional investors in the name of a strategic partnership to form an account.
Usually, GP will still deal with management problems through the outdated method of increasing personnel. It turns out that in many cases, this is an expensive and inefficient solution. The increase in personnel has not reduced the complexity of management, but has lowered the efficiency of finance, operations, human resources, and increased costs.
However, while
digital technology creates the expected economies of scale, it can also maintain the efficient operation of background and mid-level functions, so GPs can more smoothly expand the scale of funds and increase the types of funds. Today, more companies are willing to make digitalization their goal, rather than hiring more employees to work hard, as in the past.
Digital application scenarios in the private equity industry
In theory, a digital system can quickly extract, convert, search, analyze, and share a large number of data sets, and it truly has a series of big data analysis capabilities. Data processing can produce descriptive analysis (basic reports and business intelligence), descriptive analysis (action recommendations) and predictive analysis (insight on future development).
Specific to private equity investment, there are opportunities for
digital transformation in all aspects. A survey conducted by KPMG a year ago showed that areas such as foundation accounting, risk and compliance, portfolio risk management, and big data analysis are the most suitable for digitalization. Other areas that may benefit include due diligence, customer onboarding, and customer relationship management.
Starting from practice, GP digital transformation can be based on the analysis of digital systems to "pull the best and help the weak". Let ’s talk about “better” first, according to the Internet of Things (IoT) beacon analysis report released by Microsoft years ago, the return on investment of IoT users within two years is expected to reach 30%, if GP can invest and help these manufacturing companies accept industrial goods The networked model will be fully rewarded. As for "helping the weak", Mike Mills, KPMG's trading consulting partner, said, "GP with digital technology can help troubled companies find the best way to use digital technology to reduce costs and increase revenue. "
Of course, the main practice of GP digitization is to manage digitization after investment. For example, in manufacturing, data analysis can manage the flow of ingredients on the assembly line to reduce waste and predict when production equipment in an automated process may need to be maintained. In the logistics business, GP can collect operational data of various assets for a long time, understand their use and efficiency, and generate predictive analysis. In terms of marketing, GP can use digital systems to track consumer experience for data analysis, help optimize market segmentation and demographics, and then improve the sales process of its portfolio companies to personalize marketing activities to better provide products Customize, help customers discover and purchase new products, and increase target sales.
By digitizing business areas such as manufacturing, supplier management, procurement, distribution, marketing, or customer service, GP can determine which areas can improve efficiency and business decisions.
Digital Transformation Operation Manual
KPMG recommends that when the GP starts the digitization process, it should clarify its position in the digital field, evaluate the business areas that are most suitable and most in need of digitalization and carry out digital upgrades, such as investment project selection and post-investment management.
Now, LP is putting more and more pressure on GPs. They are demanding rich returns, more information, higher transparency and higher data granularity. Perhaps in the near future, LPs will use
digital technology as GP An important criterion for professionalism, so the understanding and application ability of related digital technologies becomes very important for GPs. In order to successfully implement a digitally driven value creation strategy, GP should:
1. Hire professionals with a background in digital technology. These key employees should be able to provide advice to the management team, including the purchase and internal development of new hardware and software, and the hiring of data analysts with important skills.
2. Establish data management functions. The process of collecting, aggregating, constructing, regulating, protecting, and using big data is very complicated. GP needs to give portfolio companies enough advice, such as how to acquire data management skills or how to access it through third-party technology providers.
3. The digitization process must be pragmatic. GP should start small and avoid solving all the problems at once, because trying to implement too many technological changes too early in a portfolio company will result in failure and a lot of capital loss. The focus needs to be on major technical deficiencies that may affect value creation.
4. Ensure transparency. GP publishes the progress of digitalization internally and externally in annual reports, investor meetings and other channels.
The digital transformation that has occurred in the private equity industry in Western countries
Digitalization has long been regarded as the most important trend affecting new investment. As early as the 2018 Preqin survey of 300 GPs, about 70% of the respondents admitted that the degree of digitization is very important in their investment decisions.
Two Six Capital is one of the first companies to use data science in private equity investment. The company has participated in more than $ 32 billion in private equity transactions that have been completed. The company is good at using large-scale, cloud-based engineering to process large data sets in a short period of time. This ability allows it to gain insight into what is happening in a portfolio company every day, and also allows it to conduct business investigations with very limited investment decision time. The stage has significant advantages.
Another example is The Blackstone Group, which created a data proposal team focused on data science, big data, and advanced analytics. The team works with the company ’s investment experts to improve the investment process, make new investments and optimize the operations of existing portfolio companies.
EQT, Europe's top private equity investment management company, is also undergoing a
digital transformation, pushing its working methods to cloud computing. It also created an advanced system called Motherbrain, which looks for possible investment opportunities by screening large data sets. In addition, the company formed a strong team to support the digitization of portfolio companies, such as training company employees to understand the digital signals in the market.
"Digital transformation is critical, and all companies should consider this. A few GPs already have teams dedicated to digital transformation, and other companies are just beginning to digitalize their agenda," Mills said. "There are many opportunities to reduce costs and make greater progress through robots and artificial intelligence, but there is still a long way to go to convey the true power of digital transformation in more GPs.
