GP portfolio monitoring strategy and selection is a very common project for PE Stack, with adoption driven by both the increasing data demands of a more sophisticated LP base and a desire to achieve better internal visibility on portfolio company evolution. Given the significant differences in approach between different vendors in this space, establishing requirements and identifying the best-aligned potential providers before engaging in demonstrations is especially crucial for successful procurement in this area.
Size of Vendor Universe: A Dizzying Array of Options
In total, PE Stack is tracking 127 vendors which have indicated to us that they offer portfolio monitoring for GPs. Of these, 24% are mostly or entirely focused on this area, while 76% offer portfolio monitoring as part of a wider suite of applications. If we narrow this list down to vendors which fit our stricter definition of portfolio monitoring (ingesting data from portcos, analytics engine and reporting output) we arrive at a figure closer to 40, logos for which can be seen above.
Vendor Market Dynamics:
Our database shows that middle office portfolio monitoring is a particularly dynamic space, with 39% of solutions we track being founded since 2016 and well over half within the past decade. It is therefore important for anyone considering a new platform to identify current viable providers and not rely on past processes when it comes to the universe of vendors. Increased competition in the market has also driven innovation from more established names, and it would not be wise to rely on past impressions of certain platforms when embarking on a new process.
In terms of deal activity, this is again one of the more active spaces in the overall market, with companies seeing success in raising venture capital for new products and significant interest from growth and buyout-focused investors at the larger end of the scale.
Examples of deals in this space include:
Cobalt GP + Factset: Cobalt Software Inc., a portfolio monitoring solutions provider, was acquired by FactSet, a provider of financial information and analytical applications. The acquisition was decided to advance Factset’s strategy to scale its data and workflow solutions completed using targeted investments in a multi-year investment plan and expanding its private markets offering.
Preqin Solutions (formerly known as Baxon) was acquired by Dynamo, which is backed by both Francisco Partners and more recently Blackstone.
Quaestor, an innovative new platform which specializes in direct connections to portfolio company systems to maintain accurate data received venture capital backing led by 8VC.
iLevel, one of the most prominent solutions in the space, was acquired by iPreo which was then acquired by IHS Markit.
Chronograph’s list of VC backers includes Carlyle, Nasdaq, and AlpInvest.
And many more…
Key Purchasing Criteria
In our experience, blindly stepping into the product space for portfolio monitoring and starting to look at products without a plan can lead to much confusion and wasted time. Setting the right requirements is very important.
The first consideration concerns data getting into the platform in the first place. Firms should assess the current reporting methodology from portcos and seek to ensure that the platforms being reviewed can align with this in terms of how data is ingested. We see a variety of approaches including templates, spreadsheet ingestion, and direct links to portco applications. In addition, a managed data service can be desirable for some GPs while for others this would be a non-starter.
On the other side of things, firms should consider their reporting requirements – what materials are being provided to LPs? At what frequency? What format? Are ad-hoc requests common? Ensuring that the platform can align with current or planned reporting requirements is often among the more important considerations for our GP clients.
Other key requirements we see include:
Ensuring platform can align with complex fund structures (data model evaluation)
Ability to aggregate and calculate returns at different levels – fund, firm, LP specific
The vendor must also provide other module/applications
API-driven data input/output
Ability to collect ESG metrics
Ability to calculate ESG metrics (NOT the same thing!)
And many more, we log 100+ different functionalities for our clients to consider as part of a portfolio monitoring selection.
Pricing & Contract Considerations
We see a lot of variation in the models employed by vendors in this area, some of which can significantly affect financial viability. For example, vendors with rigid pricing models based on the number of portfolio companies can create headaches for VC funds which make a lot of smaller early-stage investments - we worked with a prominent VC fund which makes a large number of seed-stage investments which simply could not align with one vendor’s rigid per-portco pricing model. A competing platform that worked with us to develop a per fund model eventually won out.
Another key consideration we would highlight is around data ingestion – this can often be a case of comparing the internal cost for maintaining the platform vs. a managed service (as opposed to seeing a managed service purely as a cost).
While not all vendors will charge for one-off implementation, this is relatively common for products of this nature and we ensure that such costs are understood at the outset to ensure that budgets can be set appropriately.
While the minimum cost for middle office platforms can be quite high, there are a number of solutions that are set up to serve smaller managers. When working with smaller firms, we will ensure that budget is considered to ensure that the right universe of products is considered from the outset.
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