How Technology Helps Private Equity Firms Measure and Manage Risks

01 June 2023 


Improve Automation, Efficiency, and Risk Management 

In discussions with stakeholders in the private equity industry, a pressing topic is the increased use of technology to automate routine tasks, manage risks, and improve internal efficiency. While there is no one-size-fits-all solution for private equity firms, a common theme is the growing investment in technology, regardless of the firm’s size. The impetus for this investment is the need for private equity firms to enhance their efficiency and effectiveness across all aspects of their business.  

Allocate Capital More Efficiently 

As with all business processes, technology can streamline operations and allocate capital more efficiently, particularly when it comes to automating mundane tasks. For instance, managing Environmental, Social, and Governance (ESG) risks can be a labour-intensive and manual process. Technology can help automate many of these tasks, freeing up private equity firms to focus on more strategic initiatives. We are witnessing the deployment of technology to collect and consolidate ESG data from various sources, analyse data to identify potential risks, and report on ESG performance to investors and other stakeholders.  

Deliver Actionable and Strategic ESG Insights 

The fast-paced innovation in technology is continually bringing new start-ups to solve old problems with new solutions. With constant change and evolution, companies can perform more intricate tasks with greater ease. The benefits of using technology to establish and track ESG goals are not limited to simplifying ESG tasks. It allows private equity firms to ensure that they are taking ESG risks seriously, establish a proper framework, communicate with all stakeholders, and ultimately deliver actionable and strategic insights.  

Drive Better Investment Decisions 

One of the most significant advantages of an all-inclusive ESG program is delivering actionable insights to drive better investment decisions. These insights may lead to new business opportunities across sectors that stakeholders are most interested in. We are also observing first hand results of strategic insights leading to increased efficiency, such as automating tasks and accessing data more quickly and easily. Efficiency enables private equity firms to collaborate more effectively with their portfolio companies. In this context, ESG becomes another lever that private equity firms use to enhance efficiency at the portfolio company level. In many cases, these levers may already be in place, or they may be deployed more ad hoc. Technology helps to provide a more unified approach at the General Partner (GP) and portfolio level.  

Leverage Technology to Create Long Term Value 

Lastly, technology can help private equity firms access higher quality data and enhance data efficacy. As data becomes increasingly crucial for all firms, we are witnessing a world where future winners will understand their ESG risks to lower environmental (energy) costs, increase social awareness, and understand governance metrics across various complex frameworks, industries, and differing regulatory bodies. As the future approaches, private equity firms can leverage technology to improve their ESG performance and create long- term value for their investors.  

Written by: Johan Tellvik, Business Development Strategist, Turnkey Group

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