In little more than a decade, the private equity market has grown at an increasing pace. Last year, private asset managers raised a record $748 billion globally.
Periods of rapid growth culminate in periods of rapid change. The Wall Street Journal claims the problem confronting private equity managers is the challenge for companies to pay for rapid growth.
However, the challenges wealth managers face go beyond volatile markets, margin pressures and unpredictable business cycles. The biggest problem facing today’s largest companies is digitalisation – and the multitude of fast-paced changes smelted in the cauldron of disruptive technologies.
The Problem With Digitalisation
Digital technology is a double-edged sword. On one side of the blade, worldwide connectivity and the enhanced analytics of big data dramatically support the capabilities of companies to deliver cutting-edge performances.
Whilst opportunity is at a premium, so are the ever-increasing threats. Digital platforms are the playgrounds of cybercriminals and fraudsters, prompting the erection of obstacles imposed by government regulations.
Meanwhile, there is a shortage of talent with sufficient digital skills. The growing need for experts in cyber-security, privacy, data governance, cloud networks and AI could lead to potential inflation of salaries for much sought-after skills.
The Bid To Stay Ahead of the Game
Albert Einstein once said new questions and new possibilities should be confronted by examining old problems from a new angle.
When Einstein tackled a problem, he just thought about it more than other people. Today’s methods are much quicker; Big Data.
Data management is a priority for PE firms. With financial regulators in the EU calling for more transparency, data is key to driving commercial value and delivering a performance that remains relevant to clients.
Big data is a game-changer. Almost half the organisations across the UK and Nordic nations apply big data for insights, yet 61% say they are struggling to get organised. As the digital arena becomes more complex, the inefficiencies of IT legacies become more evident and are holding organisations back.
The ability to react effectively when business and environmental factors shift is key to survival in the digital age. However, the business model of PE firms is no longer driven by performance alone.
Today’s fund managers have to address threats posed by outside players, such as cybercriminals. Highly successful firms become a target for bad actors, especially firms that have holdings in foreign countries where bribery, fraud and corruption are ingrained in the business culture.
The ability to preserve the reputation of a brand is of paramount importance. A spate of high-level corruption has infused a growing mistrust of corporations and, with social media, news travels ultra-fast.
A protocol for speedy responses needs to be in place in the event of a corporate crisis. Private equity portfolios can dramatically plunge when a company does not have time to react.
Private Equity Partners
In a bid to mitigate costs, PE firms are increasingly reaching out to third-party administrators in order to develop strategies together and work towards the same goals.
As a boutique service provider with flexible systems, PEA can easily manage and adapt to change. We believe companies that plan for flexibility will survive the digital revolution.
Our origins in Sweden, Denmark, and Guernsey have allowed us to develop the cultural hallmarks of leaders that are well-versed in disruptive technologies and advanced standards of regulation.
The problems posed by digitalisation are not going away. Embrace the changes and hurdle the obstacles with partners that have the vision to get over the finishing line.
James Orrick holds a Masters in Corporate Governance from Bournemouth University, a BSc (Hons) in Accounting and Finance from the University of Essex, is a Fellow of the Association of Chartered Certified Accountants and the Institute of Chartered Secretaries and Administrators.