5 Emerging Applications for Private Equity Software

This article is part of our series on private equity investing.

Emerging technologies, big data and increased competition for investments have all contributed to the explosion of private equity portfolio management software solutions available. To gain an edge, investors are finding the ability to automate various tasks a helpful tool. And with AI and machine learning improving at an exponential rate, the number of solutions are only going to increase.

With our experience working with private equity investors and portfolio companies, we have come across many problems being solved with technology. In this article, we’ve listed some of the most useful current and emerging applications of private equity portfolio management software, plus some examples of solution providers to be aware of.

1. Deal tracking

Deal tracking software is designed to help private equity firms manage the entire lifecycle of a deal, from initial sourcing, deal origination and due diligence to final exit. Here's how it typically works:

• Deal sourcing/origination: The software can help firms identify potential investment opportunities by tracking relevant news sources, industry trends and other data sources.

• Due diligence: Once a potential investment opportunity is identified, the software can help firms conduct due diligence by organising and analysing relevant data, such as financial statements, legal documents and market research.

• Deal negotiation: The software can help firms manage the negotiation process by tracking communications, deadlines and key terms.

• Closing: The software can help firms manage the closing process by tracking legal documents, financial statements and other relevant information.

• Monitoring: After a deal is closed, the software can help firms monitor the performance of the investment by tracking key metrics, such as revenue growth, profitability and market share.

• Exit: When it's time to exit the investment, the software can help firms manage the process by tracking potential buyers, managing negotiations, and tracking the final sale.

AI-driven data collection, natural language processing, sentiment analysis, pattern recognition and predictive analytics are enhancing deal sourcing in private equity by automating the process of identifying and evaluating potential investment opportunities.

Examples of deal tracking solutions

Solutions typically include a range of features such as project management tools, document management tools, communication tools and reporting tools. Private equity firms manage the entire deal lifecycle in a streamlined and efficient way, while also providing valuable insights into the performance of their investments. Some of the most popular deal tracking software solutions include: 

• Allvue is a cloud-based deal tracking software platform that offers tools for deal management, investor reporting, and portfolio monitoring. It is designed specifically for private equity firms and other alternative asset managers.

• Aumni is a cloud-based platform that uses artificial intelligence to help private equity firms manage their investments and track their deal pipeline. It was founded in 2018 and has quickly gained traction in the industry.

2. Leadership assessment

As the most important value creation lever available to private equity investors, leadership is becoming more and more scrutinised. When an unplanned CEO exit adds, on average, 18 months to an investment timeline, ensuring the right leaders are in place is rightly demanding more focus from investors.

This is why leadership assessment and leadership capital management solutions are often used to assess new hires – psychometrics have become integral alongside CVs and interviews. New technology and methodologies have made it possible to create new kinds of tests that dig deeper. For example, behavioural analytics goes a step further than personality tests by getting to how an individual is likely to act in a given situation in the future, rather than understanding what a person is generally like “at rest”.

Applications for leadership analytics tools include:

• Assessments: psychometric tests assess skills, experience and behavioural profiles with which the tools can then offer recommendations for placement and progression.

• Path modelling: It can align your people plan with the business plan throughout the investment lifecycle to actively manage change, making recommendations for leadership changes that will most impact the VCP, and sequence the roadmap for future changes.

• Succession planning: The software can help organisations identify potential successors and develop leadership pipelines based on the results of the assessment.

Examples of leadership assessment solutions:

A key difference between the behavioural analytics solutions lies in the data their models rely on. Many are designed for all types of business, but there are those that have been built specifically for the private equity investor. 

• PACE Behavioural Analytics evaluates a team of individuals on their behaviours rather than personalities. Leaders and leadership teams are benchmarked against high-performing behaviours based on data from the past ten years of successful private equity exits. So, while there are many psychometric tests out there, this one uses data that is highly relevant to the PE context.

• Leadership Dynamics leadership analytics tools include assessments of: the structure of a team, including their functional balance, their experience (functional, situational and market/domain), a deep behavioural breakdown of the team (powered by PACE); and an overall score for each team member based on their Leadership Success Propensity Model (LSPM).

3. Risk management

Private equity investors face a wide range of risks, including market risks, credit risks, operational risks and legal risks. Risk management software can help private equity investors manage them with tools and features designed to identify, assess and mitigate risk. 

• Risk identification: The software can help investors identify potential risks by analysing historical data, market trends and other relevant information.

• Risk assessment: The software can help investors assess the likelihood and impact of potential risks by using advanced analytics and modelling tools. AI algorithms can use predictive analytics to forecast potential risks and identify early warning signs of potential problems.

• Risk mitigation: The software can help investors mitigate potential risks by providing tools for portfolio diversification, hedging and other risk management strategies.

• Scenario analysis: The software can help investors understand the potential impact of different scenarios by running simulations and stress tests.

• Compliance management: The software can help investors manage compliance risks by tracking regulatory requirements and ensuring that all necessary documentation is in place.

• Reporting: The software can provide investors with customised reports that highlight key risk metrics and provide insights into potential risks and opportunities.

Examples of risk management solutions

• Aladdin by Blackrock a risk management platform widely used by private equity firms and other asset managers.

• Axioma by Qontigo offers tools for portfolio optimisation, risk analysis and performance attribution. It is widely used by private equity firms and other asset managers.

4. Fundraising

Fundraising is a critical part of private equity, and fundraising software can help private equity firms manage the entire fundraising process, from identifying potential investors to closing deals. Software can help with the following tasks:

• Investor database management: Fundraising software can help private equity firms build and maintain a database of potential investors, including contact information, investment preferences, and other relevant data.

• Investor targeting: identifies potential investors who are a good match for a particular fund or investment opportunity, using a range of criteria such as investment preferences, risk tolerance and investment history.

• Investor outreach: communicates with potential investors through targeted marketing campaigns, email campaigns, and other communication channels.

• Investor tracking: helps firms track the progress of investor relationships, including communication history, investor preferences, and other relevant data.

• Capital calls: tracks investor commitments, generating investor reports and ensuring that all necessary documentation is in place.

• Investor reporting: generates customised investor reports that provide detailed information on portfolio performance, investment strategies, and other relevant data.

• Compliance management: helps firms manage compliance risks by tracking regulatory requirements and ensuring that all necessary documentation is in place.

Examples of fundraising solutions

• PitchBook is a platform that provides data and analytics on private equity and venture capital fundraising and deal activity. It offers tools for fundraising intelligence, investor targeting and deal sourcing.

• Preqin Pro is a platform that provides data and analytics on private equity fundraising and investor activity. It offers tools for fundraising intelligence, investor targeting, and fund performance analysis.

5. ESG investing

Adding an ESG twist to portfolio management comes with its complications. Scoring and screening can be a time intensive task, especially when each LP investor has a different set of ESG criteria for their investments. Software can help streamline the process with the following capabilities.

• ESG data integration: integrate data from a variety of sources, such as sustainability reports, regulatory filings and third-party data providers.

• ESG risk analysis: The software can help identify potential ESG risks and opportunities by analysing the integrated data and identifying trends and patterns.

• ESG performance reporting: The software can generate reports on ESG performance, including metrics such as carbon footprint, diversity and inclusion and governance practices.

• ESG portfolio optimisation: The software can help optimise portfolios for ESG factors, by identifying investments that align with ESG goals and avoiding investments that pose ESG risks.

• ESG compliance management: The software can help ensure compliance with ESG regulations and standards, by tracking ESG reporting requirements and ensuring that ESG data is accurate and up-to-date.

Examples of ESG investing solutions

• ESG Portfolio Management is a German-made software platform that helps investors manage ESG risks and opportunities by providing tools for ESG research, portfolio analysis and reporting, focusing mostly on environmental sustainability.

• Sustainalytics by Morningstar is a suite of ESG tools including research, data and analytics, ratings to help investors identify ESG risks and opportunities. It offers tools for ESG screening, portfolio analysis and reporting.