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Are private equity core system providers ready to address managers’ rising appetite for technology?

The private equity (PE) industry ranges from a myriad of small companies to a few large well-known actors. The smaller players mostly rely on email exchange spreadsheets and basic accounting software to perform critical business operations. While some of the larger players have invested in software systems or developments that only target some business areas.However, as the sector grows, these companies will struggle to manage increasing volumes because they have little overall operational efficiency and scalability. On top of this, regulators require increased reporting and controls and investors demand more accurate reports that are delivered faster with better and more granular data.One strategy to resolve this complexity is to implement one core software package that covers most business domains. This minimizes integration requirements while ensuring the software remains up to date and caters to industry changes. But do these solutions exist on the market? And to what extent do they cover all PE business domains? 

Company and solution profiles

To answer these questions, Deloitte conducted a software vendor survey limited to companies offering solutions that supposedly cover most of the PE value chain. The respondents ranged from big players with a global footprint to smaller players in Europe. Players that are only active in other geographies such as North America or Asia-Pacific were not included.


System functionalities

The survey confirmed that all software package solutions surveyed cover most of the PE value chain. However, in some areas, their maturity varies considerably, explained in part because providers usually started with a solution that only focused on one area of the value chain and later expanded to other areas.

All surveyed vendors cover most of the typical types of funds and ownership structures. While they all provide an overview and details of the fund structure and investments, only the most mature software solutions offer an enhanced user experience, for example, by providing charts that display or can be used to navigate through the investment structure.

The survey participants’ structuring and financing capabilities are generally similar. All systems allow the creation of investment opportunities, which can be converted into actual investments once qualified. The analysis of transaction capabilities shows that the software surveyed can support portfolios made up of different share classes and calculate debt gearing ratios and management fees. A reconciliation between the capital calls and the received amount is also well-developed among all participants. All participants allow the upload of valuation reports and support net asset value (NAV) computation.

However, regarding complex computations and structures, only a few offer the required functionalities and complex product design. This is a differentiating factor that investment managers with advanced special purpose vehicle (SPV) structures should consider.

From a compliance perspective, most anti-money laundering (AML) and counter-terrorist financing (CTF) requirements are covered. Business rules can be implemented to highlight breaches, send alerts and block investors, even if this requires some customization for most of the software packages. Also, to ease the deal due diligence process, all software solutions in the survey allow categorization by activity, sector, industry and country. However, only a few can allocate legal due diligence reports and signed resolutions to different levels.

Fund managers are looking to automate investor communications (e.g., notices). While all the providers surveyed propose basic functionalities to automatically publish notices, some are differentiating by offering more advanced functionalities, i.e., sharing them through investor portals.

Most solutions support exit processes with basic functionalities through MS Excel integration. Only a few offer more advanced features, e.g., the ability for clients to create waterfalls themselves, generate automatic trades by using stored distribution rates, or take the lockup period and exit conditions into account before generating the trades.


Conclusion/looking forward

One major observation of this survey is that the solutions available on the market can widely differ. Therefore, PE actors looking for the appropriate software for their business must perform a preliminary identification of business requirements and selection process. They should take into account not only the functional and nonfunctional requirements, but also the available deployment models, geographical footprint, local presence, and availability of local experts.

Another observation is that all providers surveyed are heavily investing in enhancing their software. Having implemented their software on the market for several years, they are now using their experience and customer feedback to identify software pain points and improvement priorities to enhance functionalities, usability and integration capabilities.

Market competition is also heating up. New players leveraging the latest technologies or previously focused on the liquid market are now looking to establish themselves on the private market by developing or acquiring alternative investment software.

As the market is constantly evolving, Deloitte will continue to monitor any developments and integrate new players and areas in this ongoing survey. So stay tuned for more insights in the coming years.


Press Release by Deloitte