How are debt fund managers evaluating the different technology solutions and services available to the private markets? The 3rd Annual CFO/COO Private Debt Chicago conference hosted by LPGP Connect in October 2021 sought to address this question, as well as to understand how the growth in private and distressed debt investments over the last 18+ months is influencing the LP/GP decision making process.
SS&C Advent participated on a panel titled Best in Class: Surveying Tech Solutions in Private Markets where contributors explored how firms investing in private markets should evaluate the various technology solutions available. The panelists shared their views on operational excellence, particularly around outsourcing and managed services. The growth in private markets is creating more competition and as a result, LPs are requiring more transparency and investor due diligence from the GPs. As debt fund managers evaluate tech solutions, they should ensure that these solutions meet their reporting and data requirement needs.
Vendor vs Partnership?
As several participants noted, thoroughly evaluating tech vendors is imperative to any technology decision making process; firms should consider which vendors will help their business grow and make them more successful in the future. Flexibility and adoptability are important; however, as one panelist noted, transparency is crucial to the vendor/client relationship. For a mutually beneficial partnership to emerge between both parties, the vendor should offer a consultative approach. This style helps both the industry and client to evolve, which will help firms to scale and grow in this competitive environment.
The benefits of technology solutions
The group agreed that that while technology is not necessarily creating opportunities for LPs, it is providing the ability for them to more systematically analyze transactions and deal data. This is causing a shift in the structure of investment vehicles for LPs, including their willingness to co-invest in a fund, for example. As a result, for firms that have limited access to accurate data and reporting, it is becoming a challenge to compete for quality deals. Moreover, LPs are becoming more demanding of the GP for transparency around asset class investments and look-through reporting to the underlying investments. For GPs, this is an opportunity to onboard technology and build partnerships with vendors that can help to manage these new requirements and expectations.
Co-sourcing as a differentiator
Lastly, the panel discussed if the increase in available technology is helping smaller firms compete with more established firms. As one participant mentioned, creating operational efficiencies is a key component of a firm’s technology. For smaller debt fund managers, one way to create operational efficiencies is to think of the managed services and outsourcing offering from a vendor as part of its tech stack. While these firms may not have the infrastructure in place, they do tend to be more nimble and adaptable compared to more established institutions, and will benefit from a co-sourcing model. While it may seem more onerous for these firms to onboard new technology, outsourcing and managed services can help to alleviate the burden, as well as provide GPs with more reporting and transparency to LPs and ultimately help to compete on a larger stage.
Overall, the event and panel discussions provided attendees with actionable insight into the private debt market, as well as what to consider when evaluating technology and services. For those evaluating the various solutions and managed service offerings available for private debt investors, learn more about our solutions available for private credit and private equity investors.