Inside the GP: Track changes

Two ex-LPs are determined to wean the industry off its addiction to spreadsheets with a new technology tool.

For an industry that has invested billions of dollars in cutting-edge companies over the last few decades, private equity has remained remarkably Luddite in its own use of technology. Spreadsheets continue to be widely used for monitoring and analysing fund performance data, even though this process has become increasingly unwieldy as portfolios have grown.

Now, however, two long-standing private equity LPs have come up with a system that they claim will make life easier for the next generation of investors. Graeme Faulds and Graham Patterson – who were previously founding partners at UK-based fund of funds manager SL Capital Partners, making technology investments in their spare time – have just launched TopQ, an online platform that sits alongside investors’ existing systems and helps them to analyse and share fund performance data.

Faulds clearly understands the pain point better than most, having experienced it first-hand. “What GPs would typically do is put all their portfolio company cash flows into a giant spreadsheet and share that with investors or prospective investors,” he recalls. “Then it would require a huge manual effort to reconfigure that into a format you could analyse.” One LP they met recently apparently admitted that he’d once spent 14 hours trying to get a single track record into a useable format.

And it’s not just LPs that have problems. “One fund manager told us that during their last fundraise, they’d had 83 separate requests around how their track record should be presented.”

The first benefit of TopQ is that LPs can upload a spreadsheet of company cashflows, and it gets imported in a standardised form in a matter of seconds. Some LPs have apparently been a bit sceptical about this notion, but Faulds insists they’ve quickly been persuaded by the demo. And even if non-standard formats do require a little manipulation, over time this could save countless hours of mind-numbing data entry.

Once the data has been imported, Top Q provides a series of tools to analyse it. All the standard metrics are in there – many of which use what Faulds describes as “the latest data visualisation techniques” – and it’s all widget-based, so it’s easy enough for Top Q to add in new tools as they emerge. The idea is that it’s then easy for LPs to compare different funds on an ‘apples to apples’ basis.

The cynic would suggest that most fund managers might prefer to keep their track records a bit ambiguous. But Faulds insists this is not the case for good managers. And he points out that the consistency the system creates is actually one of the most appealing things to GPs: previously they were at the mercy of whoever analysed their unwieldy spreadsheet, and that person could easily get their calculations wrong. This way everyone gets the same analysis from the same data.

Which leads on to the other main benefit: GPs can share this information online with select investors in a secure environment. Not only does this give them more control over how their data is disseminated (relative to an emailed spreadsheet); they can also see at a glance who’s engaging most with the data, and thus who their best prospects are during the fundraising process.

Clearly track record analysis is only part of the fund diligence process. But Faulds argues that it’s currently consuming an excessive amount of time, which could be better spent in other areas: “The aim is to give investors better insight into the portfolios in a much faster way, so they have more time to spend on the qualitative aspects.”