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their ESG credentials . And a growing number want to invest in a way that genuinely makes a difference .
Are private capital CFOs and their investors aligned on the frequency of data reporting , given the liquidity profile of the investments concerned ? I think investors want a greater reporting frequency and greater analysis . The CFO has limited resources and time , and they are being stretched thin in everything from deal financing to fund operations and reporting . Portfolio managers traditionally used Excel to track cash flow and deals because they didn ’ t need to employ a more sophisticated system given that valuations were static and deals were long-term . With the changes in demand from investors for data to satisfy regulatory requirements and ESG information , that has changed .
Given the growing demand from LPs for more data , what would your advice be to CFOs to help them get ahead of the game ? It ’ s time to reconsider operating paradigms and to evaluate what systems or providers can help you scale . These could be concepts such as leveraging data warehousing – and what type of automation can be enabled to ingest all this data so it is accessible , in any format , when required . An example is the data required to support ESG requirements . There are also pressures around staffing . There is currently a shortage of qualified people to perform the jobs that are needed . By not having the right people in the right roles you are creating operational risk . Operational risk is a big concern for any investor running any business – but it becomes exceedingly important when you manage people ' s money . For example , there is a lack of accountants who understand private debt and a shortage of people who understand loan processing and are experienced in the operational components of what is needed . Finding and recruiting the right people to understand and perform these operational tasks is becoming very challenging – and that is driving the need for more outsourcing . Many firms are working , researching and evaluating the right partners to help them build and scale their business .
Research is paramount – because not all vendors or systems are compatible or provide the level of data analysis and operational sophistication that your business might require . When researching a provider , consider the quality of service , the nature of the organisation and the staying power of the partners you will be working with .
What benchmarks would you recommend when it comes to ESG and D & I reporting ? Do they already exist – or does the industry need to come together to agree on them ? There are more than 60 ESG frameworks , so there is no single standard . The most common are the Global Real Estate Sustainability Benchmark ( GRESB ) and the UN ’ s Principles for Responsible Investment ( PRI ). The industry should come together around a common metric via the Institutional Limited Partners Association ( ILPA ) or the Financial Accounting Standards Board ( FASB ). In Europe , for example , the proposed Corporate Sustainability Reporting Directive ( CSRD ) will significantly extend the scope of the Non-Financial Reporting Directive ( NFRD ), capturing far more companies . It is due to take effect in January 2023 . Investors know that regulation presents an increasing risk to non-compliant companies or those who misrepresent
From a technology perspective , are private capital fund CFOs equipped to meet the expectations already outlined ? Ironically , given recent technological advances , traditional software is still predominantly used on the private equity / private debt side – but there are limits to its scalability , auditability , risk and operational controls . Excel is not able to answer or address the data requirements for ESG , for example , as it is not structured in a way where you can extract time series data . Nor is it designed to answer regulatory concerns such as the nature of the exposure within a portfolio , or global regulatory Alternative Investment Fund Managers Directive ( AIFMD ) questions . You need new systems to address that – something the hedge fund industry had to adapt to 10 years ago and which private equity is now having to adopt . Outsourcing has become a credible option for many firms because it saves them time and financial resources , and they can simply plug into an operational paradigm that ’ s already been defined . They can take advantage from day one and this eliminates the need to build their own system . That ’ s becoming an increasingly attractive prospect even for larger firms because their core competency is managing investors , money and investments , while processing and operations is secondary to their business .
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