Private equity firms are undergoing a period of rapid change. Not only is the Financial Conduct Authority (FCA) demanding greater transparency and security over operations, but investors are too.
Technology exists that can help private equity firms not just survive, but thrive – and without significant upfront investment or resources. The solution lies in embracing the cloud, not shying away from the unknown.
“Asset managers have got to get much smarter [and] work out how we can use the vast amount of data out there more effectively. Using data effectively will give you the vital, winning edge.” (Schroder’s then-head of investment, Peter Harrison)
We examine the current need for transparency and security and the cloud solutions that exist to help private equity firms achieve these aims.
The need to provide more transparent compliance and reporting
The FCA’s Asset Managers Market Study produced in November 2016 was rather damning of the industry, calling out its high margins, opaque fees and underperformance. As reported by The Financial Times it is seeking measures to enable better communication on charges, transparency on costs, and measures to help investors look at the performance of their asset manager more closely.
It is not just the regulators who are demanding improved transparency. A survey conducted by EY Global showed that between 2014 to 2015 there was a sharp 400% increase (from 11% in 2014% to 45% in 2015) in investors that deemed a firm’s reporting requirements ability as the most important factor in their selection.
Too often, compliance measures can leave your analysts and managers feeling drowned in a sea of spreadsheets and paperwork. However, cloud technology exists that not enables you to build compliance, resilience and security into your reporting processes in a much easier manner, but allows you to scale them to meet the requirements of the future.
Big data cloud technologies such as Advanced Analytics can help you meet investor and regulator demands for rich, seamless and transparent data. For example, Microsoft Azure enables you to store and access your fund’s data in the cloud, integrate it across your portfolio and leverage modern business intelligence tools to give your investors and regulators the information they need.
Your IT support company should also be able to help you further, with compliance and reporting tools such as:
- Power BI dashboards, which you can use to view your KPIs and data across desktop and mobile devices,
- Office 365, which supports advanced security and compliance features to keep your information - and your employees - secure and collaborative
- Training modules, which help your employees make the most of the technology and tools available to
Addressing the cyber-security challenge
With a wealth of customer and market-sensitive data, private equity firms are a prime target for cyber-attacks and insider dealing. If the data gets into the wrong hands, it can not only damage a client’s business or future deals, it can result in reputational damage (and resulting lost business) and even fines of up to 2% of a firm’s annual turnover under the European Union’s General Data Protection Regulation (GDPR) reforms.
The FCA’s Handbook also requires that firms effectively manage risk and controls, and recently confirmed what they look for in a speech delivered at the FT Cyber Security Summit Our approach to cyber security in financial services firms.
Whereas before, the latest security measures often required significant cost and time investment, cloud technology such as Microsoft 365 can provide solutions to many of the risks identified by the FCA (and an overview of how they can meet regulatory requirements is often outlined). With the security measures being adopted in the cloud, firms can essentially make use of economies of scale and automatic security updates to counter the latest threats at a small monthly cost.
However, whilst the cloud can offer out-of-the-box solutions, private equity firms should look to supplement this with additional security measures, such as email document encryption and a remote mobile device wipe if phones or laptops are lost. These measures can be implemented by your IT support company, who should also be on-hand with a 24/7 service desk, proactive monitoring of your server against malware and other risks, and a business continuity plan in the worst-case scenario that a breach does occur. And let’s not forget user training – after all, the biggest risks to your private equity firm often arise from employees making basic security mistakes.