June 4, 2019
The Inception of Digital Transformation
The digital transformation in private equity is upon us. Why? Because twenty years ago, the investment opportunity set was a lot smaller. It was mostly made up of buyout and venture capital funds in developed economies.
Source: Hamilton Lane Data (June 2018). Each circle represents a manager and is categorized by Hamilton Lane’s strategy definition.
Over time, as the market grew and diversified, LPs have seen an increasing number of options by geography and strategy. More importantly, investors have more choice than ever before. This is why many LPs are turning to technology platforms, or the digital transformation, to keep up.
Leveraging the Digital Transformation
LPs know that there is a large spread of returns in this asset class. Furthermore, LPs know that missing a great investment opportunity or committing to the wrong manager leaves hundreds of basis points of return on the table. Due to that, they want to be analytical decision makers. In fact, they are looking for ways to improve transparency in an asset class that has traditionally been very opaque.
Through leveraging the digital transformation trend, LPs are better able to identify the drivers of return in GP portfolios. Subsequently, LPs can then dig deep to understand the repeatability of that performance. Lastly, LPs can make distinctions between two managers that have both excelled in terms of surface-level metrics.
Altogether, today’s investors are using streamlined, automated methods to cut up a track record and bring to the surface important insights that will affect decision making.