16 Apr 2019

Where the public cloud meets private equity

Where public cloud meets private equity

 

Private equity firms, until somewhat recently, have viewed the public cloud with some trepidation, whether because of security concerns, the thought of less control over their technology estate, or fears that its ‘off-the-shelf’ solutions would not fit their highly specific needs. But, as we’ve seen, the public cloud has come a long way—and not just in the commoditization of SaaS and IaaS resources: in terms of security, as leaders Amazon and Microsoft continue to enhance their respective security frameworks via acquisition as well as product development and third-party security concepts, such as RedLock, become enterprise-ready; and the degree of flexibility afforded to PE firms, who, working with experienced service providers, can customise these platforms.

Below we explore five areas where the public cloud offers solutions for private equity.

1.      Mobility

One thing that distinguishes PE firms from others in the alternatives space is the amount of travel involved. This is not a sector in which you can be strapped to a desk, facing a Bloomberg screen. From listening to our clients’ requirements, more than four-fifths of a PE business’ headcount can be away from the office at any one time for any number of priorities, such as sourcing and developing deals or meeting with portfolio companies. This diversity, both in terms of geography and business objectives, can create diverse mobility requirements within the same firm, let alone the industry.

The public cloud and SaaS platforms, leveraging features such as Microsoft OneDrive’s Files On-Demand, have matured and can support reliable and resilient communications across multiple devices, along with secure, mobile access to data, all of which frees up your teams to go where they need.

2.      Collaboration

The public cloud also supports real-time collaborative working and sharing of any materials you might need with ready-made platforms such as Microsoft’s SharePoint Online and OneDrive (which is included in your M- or O365 licensing package!), which offer a broad range of features – from collaborative platforms to bespoke analytics that can be shared instantaneously amongst your team members.

Collaboration tools include the ability for team members to see who else is viewing a document, with users able to change documents at any time. Documents can sync instantaneously, including when team members are viewing and working simultaneously.

3.      Security

PE firms typically have more complex operational models than other investment sectors, largely stemming from the innate complexity of the deal process. As such, firms can potentially be vulnerable to security breaches, especially phishing and spear-phishing scams. Indeed, we estimate that 5-10% of emails a PE firm receives can be of this nature.

Cyberattacks are becoming more sophisticated, not to mention expensive, with litigation and insurance costs on the rise. Fortunately, SaaS-based security systems supported by the public cloud, such as Inky, are increasingly effective.

For example, one of our clients had a spear-phishing email inserted in an otherwise legitimate chain purporting to be from a senior executive, authorizing a transfer of funds to a foreign bank. Inky was able to identify this prominently in the body of the phishing attempt, and so prevented a costly security breach.

Public cloud-hosted IaaS environments can also now be monitored in real-time, both in terms of potential intrusions but also for a lesser-publicized but equally dangerous threat: configuration drift. With modern solutions, service providers like RFA can identify when changes are made (whether fraudulently or by accident) and remediate as and when necessary.

4.      Business process optimization

PE business processes tend to be more labor-intensive, given that assets are, by definition, not traded on public markets. For example, the number of individual approvals needed at the various stages of a deal can be considerable. When a hedge fund analyzes an investment, they may look at hundreds of documents. With PE, that number could be in the thousands. And, as businesses grow, so does this workload. Early-stage labor-intensive operations are often a major blocker in scaling growth-stage operations without considerable cost and increase in headcount.

With Microsoft Office 365, firms’ operational resources have access to built-in capabilities, such as Flow, designed to make business process optimization faster and simpler by removing the need for heavy coding or programming. You can use tools, templates and integrations already published on the platform, saving hundreds of hours of manual labor. The externally-developed flows are maintained and developed independently in line with the Microsoft platform, both future-proofing your systems and taking the strain off resources that would otherwise be needed for ongoing development.

Public cloud-supported optimization solutions have been known to cut approval time from three-to-five days to two-to-three hours, with a commensurate saving on man hours.

5.      Business analytics

Implementation of PE analytics is easier to achieve through existing systems, such as Microsoft’s Power BI, than other financial sectors.; the lower number and volatility of holdings makes it easier to adapt them to firms’ requirements. Customization of existing solutions rather than ground-up bespoke builds are, in our experience, a cost-effective and efficient solution for PE – for instance, utilizing the variety of readily-available features available on public cloud marketplaces to implement proprietary machine-learning algorithms easily and quickly.

In one example, we assisted a firm struggling to track its compensation status as its business grew. We created an analytics dashboard that not only tracked compensation in real-time, but incorporated data from various sources within the company, overlaying these analytics on the company financials.

The alternative is to build your own systems from the ground up. While that would give you every bell and whistle you wanted, it’s unlikely that this would offset the higher level of investment needed to produce such systems. Working with experienced professionals, you should be able to get everything you need, from inputs to visualization, just as you expect it.

 

Article produced in collaboration with sponsorship from Microsoft.

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