Nine Key Challenges Private Equity Firms Face that IT Outsourcing Can Address

Implementing digital transformation in private equity requires strategic planning and careful consideration. Below are nine critical areas of consideration, and how a well thought out strategy with a technology partner can mitigate and improve a private equity firm’s operational efficiency.  

Fragmentation of data 

Because private equity deals involve many investors, regulatory bodies, and portfolio companies, data is generated from different disparate sources. This presents a challenge when it comes to actually using data across multiple systems. 

Outsourced IT professionals are familiar with these issues and bring various software architects, API developers, and backup strategists that can consolidate data in one space so that private equity firms can gain actionable insights and make data-driven decisions with ease. 

Integration 

A private equity firm that manages a diverse portfolio knows that each portfolio company comes with unique technology and processes. Integrating these systems to ensure stability across the portfolio is a significant challenge. 

Private equity firms won't have seamless integration if there are data migration complexities, compatibility issues, and any resistance to change. Challenges with integration can result in longer timelines and more intricacies within the implementation process. 

Aligning portfolio company strategies 

Working closely with portfolio companies is key to success in private equity, but implementing digital transformation proves to be difficult across diverse businesses. Private equity firms need to find a way to align different portfolio company strategies and priorities. 

It's common for portfolio companies to have different technology requirements and digital maturity levels.  

Innovation and risk management 

Digital transformation is beneficial to private equity firms because it can foster innovation, but it does come with risks. It's important to find the balance between innovation and risk management to succeed. 

For example, your private equity firm might want to experiment with emerging technological trends like blockchain or artificial intelligence. To mitigate startup costs and risk, many firms outsource this IT service in order to test these technologies. 

Investor and portfolio company expectations 

Investor and portfolio company expectations are forever evolving, especially as the digital world evolves. Digital transformation influences what those parties expect from a private equity firm. 

Investors and portfolio companies know that they can have a seamless digital experience and access to real-time information. If your firm cannot meet these expectations, another firm will. 

Legal and financial risks 

If your private equity firm fails to comply with IT regulations, you can face legal consequences and/or hefty fines. 

Regulatory bodies can impose penalties for non-compliance which may end up impacting your firm's finances. It’s essential to know what IT regulations are pertinent to the business and ensure internally or through an outsourced IT partner that all compliance is being maintained.  

Loss of investor trust 

It’s crucial that private equity firms maintain investor confidence. Non-compliance news can spread like wildfire and damage the trust firms have built with stakeholders. 

Reputational damage is not easy to come back from. Because so much money is involved, you aren't likely to gain trust back from the investors you've already damaged, and new investors will be hesitant to swoop in. 

Loss of investor trust can mean losing major business opportunities and might even lead to bankruptcy. A simple example is a phishing attack that leads to investor data being breached from IT systems. Having an annual IT assessment of key systems to ensure best practices are being used to protect such data is critical in a strategy.  

Data breaches and cyberattacks 

If your private equity firm is not IT compliant, you increase the risk of data breaches. Data breaches expose sensitive data, such as: 

• Investor, portfolio company and employee information
• Financial data
• Intellectual property 

Firms can face legal liabilities in a regulatory investigation if they are the victim of a data breach caused by non-compliance.  

Operational disruptions 

Normal operations of a private equity firm are easily disrupted by non-compliance. Valuable time that you could be spending on boosting the business and increasing client relations is spent on: 

• Regulatory investigations
• Legal proceedings
• Rectifying non-compliant practices

If you are compliant from the start, you can avoid these problems entirely. The best way to ensure your firm is compliant is by working with experienced outsourced IT professionals. 

Next step: Enlisting outsourced support 

Hackers use sophisticated tactics to gain access to private equity firm information and data. Even a computer-savvy in-house IT team won't have the knowledge and capacity to stay up to date on technological trends. An experienced third-party IT team can provide guidance and support to help your organization maintain compliance and leverage a range of tools and tactics to mitigate these risks. Contact us below to start a discussion about your firm’s challenges and how EisnerAmper can help you address them.