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Private Equity CTOs - a force for change

Technology leaders are playing a major role
in enabling innovation and driving transformation
– particularly at the portfolio company level

Jed Gardner

​​​The role of CTOs in buy-side organizations is changing. Increasingly, technology leaders and their teams are enabling innovation across their organizations, in particular by rolling out the cloud-based technologies needed for advanced data analytics, cybersecurity, and automation.

Perhaps nowhere is this evolution as striking as in private equity. As PE firms gain ground in terms of their IT maturity, their CTOs are becoming power players, using their expertise and strategic vision to deliver on the leadership team’s core objectives, while expanding their own responsibilities and remit.

At the heart of this change is the digitization of portfolio companies. There, PE fund CTOs are spearheading efforts to create new efficiencies, maximize performance, and accelerate exit timelines. And while technology skillsets and IT resource depth are often limited within PE firms, partnerships with Managed Service Providers (MSPs) are enabling PE CTOs and their teams to punch far above their weight. 

With the role of private equity CTO in the spotlight, here are five areas where they can particularly shine. ​​​​​​​

1. Supporting better investment decisions and returns

​​​​​​​Private equity firms have accelerated their adoption of digital technologies to enhance the deal discovery process. Data analytics and artificial intelligence are contributing to better-informed decision making, as is using technology to streamline information exchange with limited partners. In addition, there is substantial opportunity to improve the financial performance, oversight, security, and process efficiency of portfolio companies through the common, centralized deployment of state-of-the-art applications and enterprise-wide tools. Increasingly, CTOs enjoy both a technology-based opportunity and a business-driven mandate to raise portfolio company technology platforms to the same standard as those of the PE firms themselves.

2. Leveraging public cloud technology

Private equity firms have accelerated their adoption of digital technologies to enhance the deal discovery process. Data analytics and artificial intelligence are contributing to better-informed decision making, as is using technology to streamline information exchange with limited partners. In addition, there is substantial opportunity to improve the financial performance, oversight, security, and process efficiency of portfolio companies through the common, centralized deployment of state-of-the-art applications and enterprise-wide tools. Increasingly, CTOs enjoy both a technology-based opportunity and a business-driven mandate to raise portfolio company technology platforms to the same standard as those of the PE firms themselves.

Much of the opportunity to coordinate and consolidate technologies across portfolio companies centers on access to diverse, high-quality services and capabilities using public cloud infrastructures. For PE firms looking to support the business growth of portfolio of companies within a common industry sector, cloud enables multiple entities to store and manage data and access diverse services via a single solution typically supplied and managed by an MSP. Many common needs across fund and portfolio constituents can be met through a bespoke combination of Office 365, the major public cloud providers, private cloud elements, and archiving and storage capabilities. These resources may need to be augmented, however, especially if portfolio companies have very precise needs or operate in industries subject to a high degree of regulatory supervision. Regardless of your requirements, if you need to choose an MSP to assist your cloud migration, be sure to select one with the requisite expertise, including technology-agnostic software development services.

Data analytics and artificial intelligence are contributing to better-informed decision making, as is using technology to streamline information exchange with limited partners. .

3. Improving performance at portfolio companies

Centralizing and consolidating technology platforms across portfolio companies offers significant scope for cost and risk reduction, and performance enhancement. However, it is rare for companies within a specific PE fund to have commonality across core financial systems and/or technology infrastructure. Common enterprise-level functions, such as cybersecurity, networking, server/data center management, communications, human resources, and customer relationship management all tend to be different. By helping portfolio companies select the right technology and partners, the CTO is also providing new perspectives, potentially leading to improved operational efficiencies and financial metrics. Thus, implementation of a portfolio-wide tech strategy eases administrative burdens for portfolio company management while enhancing the ability of PE fund managers to monitor and improve performance.

4. Protecting data and assets from cyberthreats

Cybersecurity is of vital concern to private equity firms, as economic activity becomes increasingly digitized, and remote working becomes the norm. PE has been a focal point of phishing attacks, writes Forbes. According to Interpol, cyberthreats intensified in 2020, with cybercriminals using a full range of techniques to exploit the Covid-19 pandemic, including phishing, malware, and malicious domains. To guard against data breaches and catastrophic losses, private equity CTOs should work with MSPs to leverage the world-class cybersecurity afforded by public cloud providers. Choose a trusted partner to help you select the most suitable public, private or hybrid cloud arrangement to protect your data, harden your defenses internally and across your portfolio companies, and flex to meet your evolving requirements. A managed solution can address risks across portfolio companies and third/fourth party vendors, using machine learning to identify current vulnerabilities and mitigate future risks.

5. Automating intelligence

Artificial intelligence, machine learning, and data analytics offer powerful tools for PE firms to exercise greater control and oversight, reduce costs and risks, and deliver stronger financial and operational discipline and performance. In the retail sector, this might include using AI to monitor the utilization of discounts offered on portfolio company websites to assess and optimize cash positions, i.e. by scraping pricing data from websites, benchmarking normal versus increased offer levels, and alerting the parent automatically if a threshold is breached. Digitalization can also support and track customer satisfaction or facilitate omni-channel sales and personalized marketing. Regardless of how it is used, AI and ML needs to be ethical in approach, and scraping data from emails, websites and social media must be a strategic compliance discussion.

Artificial intelligence, machine learning, and data analytics offer powerful tools for PE firms to exercise greater control and oversight, reduce costs and risks, and deliver stronger financial and operational discipline and performance.

Grasp your moment in the sun

The role of technology in private equity strategy is changing, and with it the strategic role that private equity CTOs can play. At the same time, internal skill sets and resource depth within technology teams at private equity firms are rarely orientated toward tackling the complex challenge of consolidating, optimizing, and managing systems and infrastructures across portfolio companies. If that’s the case at your firm, consider partnering with an MSP to ensure you choose the best technology and data solutions to achieve your strategic objectives.

At Linedata, we can support you in your role as strategic enabler by helping you define your strategy and deploy and manage the right technology within your firm and its portfolio companies.

 

 

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