dealmarket asks

DealMarket Digest Asks ….

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January 25, 2012

DealMarket Digest asks Cyril Demaria, Why should PE investors more rapidly adopt IT?

 

Cyril Demaria, Tiaré Investment Management’s chief investment office answers. Private equity investors should adopt information technologies rapidly for at least three reasons. The first and probably the most pressing reason is regulations.

 

European (AIFMD, Solvency II Directive…), American (FATCA, « Volcker rule », Dodd-Franck Act…) and international regulations (Basel III Agreements, Pension funds regulations, and insurance regulations) have introduced new obligations to private equity fund managers. They can be summed up as follows: timelier (insurance groups expect quarterly reports within 45 to 60 days, for example), more comprehensive and more objective reporting (AIFMD, CalPERS vs San Jose Mercury News). Adopting a state-of-the-art IT system (for example connected to the limited partners systems and transmitting easily reusable data) saves time and helps to fulfill these obligations.

 

The second reason is communication. The increased number of limited partners new to the asset class, the need of large amounts of data for due diligences, as well as the scarcity of information in private equity are a significant driver to document the business of general partners on-going. This approach helps to provide detailed information, to avoid significant extra work when preparing a fundraising – notably because general partners are more or less on a “permanent fund raising”. The 2007-2009 crisis presses for more extensive due diligences by limited partners and hence the need of information.

 

The third reason is operational risk management. As private equity fund managers will institutionalize, due to regulations and their transformation into “asset management houses*, there will be an increased need to manage the risk of conflicts of interests (for example by unruly communication between LBO / PIPE / real estate / distressed debt teams) or avoid insider trading accusations. To be able to so, general partners will have to set up processes and rules, enforced technically and also supporting investigation in case of legal proceedings.

 

Cyril Demaria is also a Professor at HEIG-VD, EDHEC and EADA and author of Introduction to private equity , Coll. « The Wiley Finance Series », published by Wiley

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