Henri Wajsblat, Anaplan’s Head of Financial Services Solutions, interviewed Anaplan partner and Lionpoint Group Executive Director Nick Moore about how new technology solutions can help the private equity sector improve performance management. At Hub17, Lionpoint Group launched the Theoretical Waterfall Anaplan app, designed to model and forecast returns of private equity funds.
Over the last few years, we’ve seen regulation changes, risk, and market volatility impacting the financial services industry’s business model. Have private equity funds and investors been hit by these market factors?
Very much so. Private equity funds in particular have been hit with the Foreign Account Tax Compliance Act (FATCA), the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD), and the Common Reporting Standard (CRS), among other regulatory requirements. There also has been additional scrutiny from investors around the deal lifecycle, investment returns and valuations, and performance fees. On top of this, the industry as a whole has moved towards standardization of data and reporting requirements.
How is technology supporting private equity CFOs as they meet these challenges?
Private equity has, in the past, been quite slow to adapt to changes and introduce or embrace new technologies. At first that might seem surprising, since many private equity firms are small (in terms of people) and are generally receptive to new ideas, so they seem like prime candidates for new technology. The issue is with the software solutions that serve the financial services industry: They tend to focus on one or two core functions, and therefore are weak—or provide no solution at all—in other important areas. Not only that, but most are especially weak when it comes to planning and modeling. Consequently, a big investment in a technology solution can still fall short of expectations, because its effects don’t reach every part of the business. That’s why a combination of technology solutions is required to really transform business operations.
That’s also why a key factor is integration between disparate solutions. But integration is generally complex and costly for smaller firms. Cloud technology is reducing the need for complex data warehouses and internally supported IT environments, enabling more efficient and effective reporting and analysis accessible and customizable by individuals within the business. Transparency is a significant factor on the minds of CFOs today as investors and regulators are demanding more granularity around fees, expenses, and carry calculations. Finally, mobility is prevalent in the minds of private equity firms, and full access to information while on the road is important for deal teams.
What are some of the benefits that a solution such as Anaplan can provide to private equity funds and investors?
Anaplan provides many of the benefits of a traditional data warehouse, with the added benefit of being understandable to business users. It can serve as a tool for receiving information from multiple sources, internal and external (such as administrators and operating partners), to allow funds to model and evaluate cash flow data at the investment and investor level. Being cloud-based, Anaplan also fulfills private equity firms’ mobility requirements.
Lastly, it’s flexible. Once a firm solves a specific pain point using Anaplan, multiple other areas within the firm often find they can benefit from its use. Some of those include budgeting and cash flow forecasting, sale realization modeling, carry modeling, and compensation planning and approval.
Lionpoint Group created a Theoretical Waterfall application in Anaplan. What issue does this app solve?
The Theoretical Waterfall application provides a method to calculate expected returns to the fund and investors—carry or waterfall—based upon criteria set out in the partnership agreements of each fund. Typically, these calculations are done in Excel®. Anaplan is flexible enough to work for any waterfall scenario set out by a fund, provide detailed insight into the calculations for auditors to tie these calculations back to agreements, and enable firms to forecast and produce a variety of “what-if” scenarios.
The application would be beneficial to both a fund administrator servicing multiple funds (because it allows their clients to access and model cash flow information) and to private equity firms that need to manage a range of funds in-house.
For more information on Lionpoint Group’s Theoretical Waterfall app, and to learn how Lionpoint Group helps private equity firms improve performance management, check out the app in the Anaplan App Hub and read Lionpoint Group’s Anaplan for Private Equity white paper.